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

Held

The Court held that the Tax Board was justified in law 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 the scheme and Section 5 of the RVAT Act, is levied in lieu of tax liability and retains its characteristic as tax. Crucially, Article 286 of the Constitution prohibits states from imposing tax on exports. Therefore, the revenue's contention that gross turnover should include export sales would tantamount to permitting the state to collect tax on exports, which is constitutionally impermissible. The Court distinguished the Naveen Jewellers judgment, noting it was under a prior tax regime (RST Act) and did not consider Section 5 of the RVAT Act. The Court also emphasized that the term 'gross turnover' in the scheme must be read in conjunction with 'within the State'. The ratio decidendi is that state tax laws cannot impose tax on exports, and composition schemes derived from state tax laws must adhere to this constitutional limitation. The Court answered the question of law 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 that this led to underpayment of the composition amount. The original assessment order dated 02.03.2021 held the assessee liable for ₹32,53,180/-. The Appellate Authority dismissed the assessee's appeal on 28.03.2022. However, the Tax Board allowed the assessee's appeal and quashed the previous orders on 13.07.2022, leading to the present revisions by the revenue.

Key Issues

1. Whether the Tax Board was justified in law in holding that the export amount is to be excluded from gross turnover for the calculation of the Composition Amount under the ‘Composition Scheme for Gem and Stones, 2006’? Contentions of the Revenue: The revenue argued that once an assessee opts for the Composition Scheme 2006, they must abide by all its terms. The scheme requires payment of a composition amount determined on the basis of gross annual turnover. The revenue contended that 'annual gross turnover' should include export sales, as per the Co-ordinate Bench judgment in M/s Naveen Jewellers vs. Commercial Taxes Officer (STR No. 127/2012), which held that composition amount is in the nature of a fee/fine and gross turnover includes export sales. The revenue cited State of U.P. and Ors. vs. Ajay Kumar Sharma and Ors. and S. Kasi vs. State to support the binding nature of co-ordinate bench judgments. Contentions of the Assessee: The assessee argued that the Tax Board rightly distinguished the Naveen Jewellers judgment. They contended that Naveen Jewellers dealt with a refund of composition amount by a 100% exporter under the previous Rajasthan Sales Tax Act, 1994 (RST Act), not the RVAT Act. The assessee highlighted that the RVAT Act is based on multi-point taxation with input tax credit, unlike the single-point RST Act. Furthermore, the assessee pointed out that the Composition Scheme 2006, derived from Section 5 of the RVAT Act, specifies 'sales of all kinds... within the State', implying that export sales should not be included in the 'gross turnover' for composition calculation. They also invoked Article 286 of the Constitution, prohibiting state tax on exports.