M/S Gem INDIA Investments vs. Assistant Commissioner, Anti Evasion

Held

The Court held that the Tax Board was justified in excluding export sales from the gross turnover for the calculation of the composition amount under the Composition Scheme for Gem and Stones, 2006. The Court reasoned that the composition amount, as envisaged under Section 5 of the RVAT Act and the notification, is levied in lieu of tax liability. Article 286 of the Constitution prohibits the State from imposing tax on the sale or purchase of goods outside the State or in the course of import or export. Therefore, including export sales in the 'gross turnover' for calculating the composition amount would amount to the State collecting tax on exports, which is constitutionally impermissible. The Court distinguished the revenue's relied-upon judgment in M/s Naveen Jewellers vs. Commercial Taxes Officer, noting it pertained to a prior tax regime (RST Act) and a different factual matrix. The Court highlighted that the RVAT Act is based on multi-point taxation with input tax credit, and Section 5 of the RVAT Act specifically provides for payment of 'tax in a lump sum'. The term 'gross turnover' in the scheme must be read in conjunction with 'within the State', as indicated in the scheme itself. Consequently, the question of law was answered in favour of the assessee.

Facts

The revenue initiated proceedings against M/s Gem India Exports and M/s Gem India Investments after a survey on 31.05.2016 revealed that the assessees, who had opted for the 'Composition Scheme for Gem and Stones, 2006' under the Rajasthan Value Added Tax Act, 2003 (RVAT Act), failed to include export sales in their 'gross turnover' for calculating the composition amount. The revenue contended this led to underpayment of the composition amount. The original assessment order dated 02.03.2021 held the assessee liable for ₹32,53,180/-. An appeal was dismissed by the Appellate Authority on 28.03.2022. However, the Tax Board, by an order dated 13.07.2022, allowed the assessee's appeal, quashing the prior orders. The revenue has filed revision petitions challenging the Tax Board's decision.

Key Issues

1. Whether the Tax Board was justified in law in holding that export amount is to be excluded from gross turnover for calculation of Composition Amount under the ‘Composition Scheme for Gem and Stones, 2006’ (RVAT Act, Section 5)? The revenue argued that once an assessee opts for the Composition Scheme 2006, they must abide by its terms. They contended that 'annual gross turnover' should include all turnover, including export sales, as this affects the composition amount. The revenue relied on a co-ordinate bench judgment in M/s Naveen Jewellers vs. Commercial Taxes Officer, which held that composition amount is in the nature of a fee/fine and gross turnover includes export sales. They also cited Supreme Court judgments on the binding nature of co-ordinate bench decisions. The assessees argued that the Tax Board rightly distinguished the Naveen Jewellers judgment. They contended that the Naveen Jewellers case dealt with a previous tax regime (Rajasthan Sales Tax Act, 1994) and a different issue (refund of composition amount for a 100% exporter). They emphasized that the RVAT Act is based on multi-point taxation with input tax credit, unlike the single-point tax regime of the RST Act. Furthermore, they argued that Section 5 of the RVAT Act, read with Article 286 of the Constitution, prohibits the state from levying tax on exports, making the revenue's contention impermissible.