Jammu and Kashmir High Court Upholds GST Applicability on Cross-LoC Barter Trade

Court dismisses petitions challenging show cause notices under GST Act; directs petitioners to pursue statutory remedies.

In a significant ruling, the Jammu and Kashmir High Court has determined that cross-Line of Control (LoC) barter trade between the divided parts of the erstwhile Jammu and Kashmir State constitutes intra-state trade, making it subject to the provisions of the Central Goods and Services Tax Act, 2017, and the J&K Goods and Services Tax Act, 2017. The Division Bench, comprising Justices Sanjeev Kumar and Sanjay Parihar, dismissed a series of writ petitions filed by M/s. New Gee Enn and Sons and others, challenging the show cause notices issued under Section 74(1) of the CGST Act, alleging suppression of facts.

The petitions were filed against the backdrop of investigations initiated by the GST authorities, which found substantial outward and inward supplies during the cross-LoC barter trade that were not accounted for in the GST returns. The trade, originally exempt under the Jammu and Kashmir Value Added Tax Act, 2005, was not covered by any specific exemption in the GST regime rolled out in 2017.

The court held that cross-LoC barter trade is intra-state trade under GST laws, as the location of suppliers and the place of supply fall within the same State, now Union Territory. Consequently, the trade is amenable to GST provisions. The show cause notices, alleging suppression of facts, were deemed valid, and the court found no merit in the petitioners' challenges regarding jurisdiction and limitation. 

Further, the court emphasized the availability of statutory remedies under Section 107 of the CGST Act, directing petitioners to pursue these avenues instead of invoking writ jurisdiction under Article 226 of the Constitution. The court noted that the writ petitions were premature, as statutory remedies were not exhausted.

Additionally, the court left open the question of whether taxing both inward and outward supplies in a barter trade is permissible, directing that this should be adjudicated by appropriate authorities under the CGST Act.

The decision represents a pivotal interpretation of GST laws concerning cross-LoC trade, reinforcing the applicability of GST on barter transactions. The judgment clarifies procedural aspects of issuing composite show cause notices and underscores the importance of exhausting statutory remedies before seeking judicial intervention.

Bottom Line:

GST law applicability on cross-LoC barter trade - Held, cross-LoC barter trade is intra-state trade and is amenable to the provisions of the CGST Act, 2017 and J&K GST Act, 2017. Show cause notices issued under Section 74(1) of CGST Act, 2017, alleging suppression of facts, are valid and within the period of limitation - Availability of statutory remedy under Section 107 of CGST Act bars the entertainability of writ petitions under Article 226 for challenging such notices.

Statutory provision(s): Central Goods and Services Tax Act, 2017, Sections 74(1), 74(10), 107; J&K GST Act, 2017; Constitution of India, Article 226

M/s. New Gee Enn and Sons v. Union of India, (Jammu and Kashmir)(Srinagar)(DB) : Law Finder Doc Id # 2813818