Facts of the Case

A batch of 35 writ petitions was filed by traders engaged in cross-Line of Control (LoC) barter trade between the erstwhile State of Jammu and Kashmir and Pakistan-occupied Kashmir, conducted under a 2008 Standard Operating Procedure issued by the Ministry of Home Affairs as a Confidence Building Measure. Under the earlier VAT regime, Section 55 of the J&K VAT Act, 2005 treated this cross-LoC trade as zero-rated, and the traders accordingly paid no sales tax. After GST was rolled out in July 2017, no corresponding zero-rating provision existed under the CGST Act or the J&K GST Act. The traders continued to treat cross-LoC transactions as tax-free and did not disclose them in their GST returns for 2017-2018 and 2018-2019. Acting on information from the DGGI, the Superintendent, CGST and CX Range-I, Srinagar, issued show-cause notices under Section 74(1) of the CGST Act alleging wilful suppression of taxable outward and inward supplies. In some cases, the demand had already been confirmed. The traders challenged the notices/orders before the High Court, contending that the cross-LoC trade was not an intra-state supply, that the notices were time-barred, and that Section 74 was wrongly invoked instead of Section 73.

Issues Involved

  1. Whether cross-LoC trade between the two parts of the State of Jammu and Kashmir constitutes an "intra-state supply" taxable under the CGST Act/JK GST Act.
  2. Whether the impugned notices were, in substance, notices under Section 73(1) rather than Section 74(1) of the CGST Act.
  3. Whether the notices issued under Section 74(1) were barred by limitation.
  4. Whether bunching a single show-cause notice for two different financial years (2017-2018 and 2018-2019) was permissible.
  5. Whether, in a barter trade, an assessee could be taxed twice — once on outward supplies and again on inward supplies of equivalent value.
  6. Whether the availability of a statutory appellate remedy under Section 107 barred entertaining the writ petitions under Article 226.

Petitioner's Arguments

  • The cross-LoC trade, being conducted with Pakistan-occupied territory, was not amenable to the CGST Act, though counsel fairly conceded the trade was, in substance, intra-state.
  • The show-cause notices, though styled under Section 74(1), were in substance Section 73(1) notices since there was no fraud or wilful suppression, only bona fide continuation of the pre-GST zero-rated treatment.
  • The notices for the 2018-2019 period were barred by limitation, and bunching notices for two separate financial years into a single show-cause notice was impermissible under GST law.
  • In a barter arrangement where goods of equal value are exchanged, taxing both the outward and the corresponding inward supply amounted to double taxation.

Respondent's Arguments

  • Supplies to and from PoK under the cross-LoC SOP were intra-state supplies taxable under the CGST/SGST Act, and no exemption notification existed for such barter trade under GST.
  • The notices were rightly issued under Section 74(1) because the traders had deliberately and wilfully suppressed taxable supplies in their GSTR-1 and GSTR-3B returns to avoid payment of GST.
  • Relying on Notification No.80/2020-Central Tax, the due date for filing returns for 2018-2019 was extended to 31 December 2022, so the notices were within limitation.
  • The petitioners should be relegated to the statutory remedy of appeal under Section 107 of the CGST Act instead of invoking writ jurisdiction.

Court Order / Findings

  • The Court held that since the location of suppliers and the place of supply of goods were both within the territory of the (undivided) State of Jammu and Kashmir, including the area under Pakistan's de facto control, the cross-LoC trade was an intra-state supply taxable under the CGST/JK GST Act.
  • The Court declined to adjudicate finally on whether the notices ought to have been issued under Section 73 instead of Section 74, on limitation, on the bunching of notices, and on double taxation in barter trade, leaving these questions open for determination by the departmental/appellate authorities.
  • Applying settled principles on the bar of alternative remedy (including Radha Krishan Industries vs. State of Himachal Pradesh), the Court held that since the impugned notices/orders did not disclose a case of want of jurisdiction or breach of natural justice, the petitioners must avail the statutory remedies under Sections 74(9) and 107 of the CGST Act.
  • The writ petitions were dismissed, with directions that petitioners who had not yet replied to the notices could do so within four weeks (proceedings to conclude within three months thereafter), and that petitioners against whom demand had already been confirmed could file a Section 107 appeal within three months.

Important Clarification

  • The Court expressly clarified that its observations on the merits of the controversy, including on the nature of the trade, would not bind the proper officer or the Appellate Authority, who remain free to independently adjudicate all questions, including limitation, bunching of notices, and alleged double taxation.
  • Only the finding that cross-LoC trade constitutes intra-state supply was treated as a binding legal determination; the remaining substantive questions were left entirely open.

Sections Involved

  • Section 74 of the Central Goods and Services Tax Act, 2017 — governs demand notices for tax not paid due to fraud, wilful misstatement or suppression of facts, invoked against the petitioners.
  • Section 73 of the Central Goods and Services Tax Act, 2017 — governs demand notices for other, non-fraudulent short payment of tax, argued by petitioners as the correct provision.
  • Section 107 of the Central Goods and Services Tax Act, 2017 — provides the statutory appellate remedy to which the petitioners were relegated.
  • Section 8 of the Integrated Goods and Services Tax Act, 2017 — defines intra-state supply, central to the Court's finding on the nature of cross-LoC trade.

Decision – In Favour of

Department. The writ petitions were dismissed as premature/barred by alternate remedy, with the Court holding cross-LoC trade to be intra-state and taxable, while leaving limitation and other merits issues open for the departmental authorities.

Case Details

  • Court: High Court of Jammu & Kashmir and Ladakh at Srinagar
  • Case No.: WP(C) 1938/2024 and 34 connected writ petitions
  • Coram: Justice Sanjeev Kumar and Justice Sanjay Parihar
  • Date of Order: 27th November 2025

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