'Territory Under Pak's Control On LOC Still Part Of J&K, Any Trade Is Intra-State Supply For Purpose Of GST': J&K&L High Court

The Jammu & Kashmir and Ladakh High Court has held that the area of the erstwhile State of Jammu & Kashmir presently under the de facto control of Pakistan remains part of the territory of India, holding that cross-LoC trade carried out under the 2008 Standard Operating Procedure is to be treated as intra-state supply.The Court was hearing several petitions challenging show cause notices and demand proceedings issued under Section 74 of the Central Goods and Services Tax Act, 2017, arising out of assessment against traders engaged in cross-LoC barter trading during tax periods 2017-2018 and 2018-2019.A Bench comprising Justice Sanjeev Kumar and Justice Sanjay Parihar, while determining the territorial status of the supply locations involved, observed that “the area of the State presently under de-facto control of Pakistan is part of territories of the State of Jammu & Kashmir”, and that “the location of the suppliers and the place of supply of goods were within the then State of Jammu Kashmir (now Union Territory)”, therefore holding that, “the cross-LoC trade affected by the petitioners during the tax period in question was nothing but an intra-state trade”.The matter arose after tax authorities issued show cause notices under Section 74(1) of the CGST Act, alleging wrongful availment of exemptions and raising demands for CGST and the corresponding State GST under the J&K GST regime in the names of traders who had indulged in the cross-LoC barter trade during tax periods 2017-2018 and 2018-2019.Cross-LoC trade between Uri–Muzaffarabad and Poonch–Rawalakot corridors had been regulated through an SOP issued by the Ministry of Home Affairs in 2008. Transactions were carried out on a barter basis, with trucks moving pre-approved goods across designated crossing points. The petitioners questioned the jurisdiction and legality of these notices, asserting that barter exchanges on cross-LoC routes did not attract GST, that the transactions constituted neither intra-state nor inter-state supply, that tax liability was time-barred, that multiple years could not be combined in one notice, and that the writ court ought to intervene despite the existence of alternative remedies under the statute.The High Court, upon hearing the rival contentions, observed that it was not disputed by either side that the area of the erstwhile State of Jammu & Kashmir presently under the de facto control of Pakistan continues to form part of the territories of the State of Jammu & Kashmir in the eyes of law. Proceeding on this foundation, the Court noted that both the supplier and the place of supply in transactions undertaken under the 2008 Standard Operating Procedure were located within the same territorial entity governed by the Constitution of Jammu & Kashmir before reorganisation and now forming the Union Territory. By referring to the definitions of “intra-State supply” and “location of supplier” under the GST statutes, the Bench held that the statutory framework leaves no room to treat supply between two regions of the same State as anything other than intra-State trade. Consequently, the supplies made by the petitioners into the areas under de facto control of Pakistan during the 2017-18 and 2018-19 tax periods were found to be intra-State in nature and therefore amenable to CGST and the then J&K GST Act.The Court next addressed the challenge to the show-cause notices issued under Section 74(1) of the CGST Act. The petitioners had submitted that the notices were barred by limitation and should, in any case, have been issued under Section 73, which deals with cases not involving suppression, fraud or wilful misstatement. In response, the Court observed that the allegations levelled against the petitioners specifically invoked suppression of facts on account of non-disclosure of supplies in GST returns, which legally attracts Section 74(1). The Court further held in the instant case, the bunching of composite show cause notice issued in respect of tax periods falling in the mentioned years 2017-2018 and 2018-2019 is not impermissible and hence not liable to be interfered with. It is only in the cases where the show cause notice suffers from vagueness or non-specificity that bunching may be impermissible, the Court held. On the issue of barter-based GST valuation, the Court recorded that the question whether goods exchanged for equal goods would attract GST twice on inward and outward supplies involves mixed questions of fact and law and therefore reserved this question for determination before the adjudicating authority under the Act.On the argument relating to alternative statutory remedies, the Court held that the writ petitions challenging the show-cause notices were premature, since the petitioners had not yet submitted replies or participated in the adjudicatory process. The Court reaffirmed the principle that the availability of an equally efficacious remedy under Section 107 of the CGST Act operates as a bar on the exercise ...

'Territory Under Pak's Control On LOC Still Part Of J&K, Any Trade Is Intra-State Supply For Purpose Of GST': J&K&L High Court

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