Assistant Commissioner vs. M/S Gem INDIA Investments

Held

The Court held that the Tax Board was justified in excluding export sales from the gross turnover for calculating 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. Including export sales in the gross turnover for composition would amount to the State collecting tax on exports, which is constitutionally impermissible under Article 286 of the Constitution. The Court distinguished the precedent of M/s Naveen Jewellers vs. Commercial Taxes Officer, noting it pertained to a prior tax regime (RST Act) with different provisions (single-point taxation without input tax credit) 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', as deliberately used by the legislature. Therefore, the question of law was answered in favour of the assessee. The revenue's STRs were dismissed, and the assessee's STRs were disposed of.

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 resulted in underpayment of the composition amount. An assessment order dated 02.03.2021 demanded ₹32,53,180/- from one assessee. The Appellate Authority dismissed the appeal, but the Tax Board allowed the assessee's appeal, quashing the prior orders. The revenue filed Sales Tax Revisions/References (STRs) 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’? (Question of law) Petitioner (Revenue) argued that once an assessee opts for the Composition Scheme 2006, they must abide by its terms, and 'annual gross turnover' includes export sales, affecting the composition amount. They relied on the High Court's decision in M/s Naveen Jewellers vs. Commercial Taxes Officer (STR No. 127/2012) and Supreme Court judgments in State of U.P. and Ors. vs. Ajay Kumar Sharma and Ors. and S. Kasi vs. State. Respondent (Assessee) argued that the Tax Board correctly distinguished Naveen Jewellers, as that case dealt with a prior tax regime (RST Act) and a different issue. They contended that the RVAT Act and the Composition Scheme 2006, stemming from Section 5 of the RVAT Act, are distinct. Furthermore, they argued that including export sales in gross turnover for composition would violate Article 286 of the Constitution, which prohibits state taxation on exports.