Srinagar- The High Court of J&K and Ladakh has dismissed a batch of petitions challenging show-cause notices issued under the GST Act in relation to the now-barred cross-LoC trade, underscoring that the transactions in question constitute intra-state trade.

As many as 35 petitions were filed before the court challenging the show-cause notices issued to them by the Superintendent, CGST and CX Range-I, Srinagar, under Section 74(1) of the Central Goods and Services Tax Act, 2017, read with the J&K Goods and Services Tax Act, 2017.

“It is not disputed by learned counsel appearing on either side that the area of the State presently under de-facto control of Pakistan is part of territories of the State of Jammu & Kashmir. Therefore in the instant case the location of the suppliers and the place of supply of goods were within the then State of Jammu Kashmir (now Union Territory) and, therefore, the cross-LoC trade affected by the petitioners during the tax period in question was nothing but an intra-state trade,” a bench of Justice Sanjeev Kumar and Justice Sanjay Parihar said.

Counsel for the petitioners submitted that the trade from Islamabad-Uri and from Rawalakot (PoK) to Chakkan-da-Bagh (Poonch) as mutually agreed by India and Pakistan, was a barter trade and there was no exchange of currency.

The petitioners contended that they had treated cross-LoC trade as a zero-rated sale attracting no sales tax. Consequently, they neither reported these transactions in their returns nor paid any tax on them. This, they submitted, pertained to the financial years 2017–2018 and 2018–2019.

The authorities, having received information from the Office of DGGI, JRU, Jammu, initiated investigations against the petitioners to probe as to whether they had paid GST on their outward supply of goods to PoK during cross-LoC trade and also on the inward supplies received from PoK upto 12th October, 2017.

Subsequently, Superintendent, CGST and CX Range Srinagar, called for trade-wise, item-wise details of goods traded out and the goods traded-in, in respect of each cross-LoC traders for the period with effect from 8th of July, 2017, to 7th of March, 2019.

Upon collection of the relevant material, the authorities said that it was found that there were huge outward and inward supplies affected by the petitioners and that the GST on such supplies had not been accounted for in the returns filed by them. Accordingly, the show cause notices were served to the petitioners in terms of Section 74(1) of the CGST Act, 2017. The petitioners chose not to reply to the show cause notices and decided to assail the same before the Court under Article 226 of the Constitution of India on the ground that the show cause notice was without jurisdiction and bad in the eyes of law.

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