New Delhi: The Jammu & Kashmir and Ladakh High Court has held that across-Line of Control (LoC) trade with Pakistan-occupied Kashmir (PoK) is intra-state trade, since the areas under Pakistan’s de-facto control remain part of Jammu & Kashmir and therefore part of India.
The ruling came while the Court was hearing a batch of petitions filed by traders who had received show-cause notices under the GST Act for goods moved on the Srinagar Muzaffarabad and Poonch Rawalakote routes.
A Division Bench of Justice Sanjeev Kumar and Justice Sanjay Parihar said, “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 the 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 intrastate trade,” Bar & Bench reports.
Cross-LoC trade began in October 2008 as a barter-based confidence-building measure between India and Pakistan. It involved no currency exchange and was meant to benefit people living on both sides of the LoC. The government suspended the trade in 2019 after the Pulwama attack, citing concerns that the routes were being misused for “funneling illegal weapons, narcotics and fake currency, etc.”
The traders argued that the trade was governed by a government-issued SOP and therefore not subject to GST. They also claimed that the show-cause notices were time-barred and that no tax could be demanded until traders in PoK paid their part.
The Court rejected these arguments and noted that there was prima facie suppression of material facts, pointing out that the traders knew there was no exemption notification under Section 11 of the CGST Act for cross-LoC barter trade.
The Bench said, “They were also aware that these supplies, whether inward or outward, were intrastate supplies and subject to GST in terms of section 7 of the CGST Act 2017. It was the responsibility of the petitioners to self-assess and discharge their GST liability at the time of filing GST returns properly.”
It said, “In respect of impugned show cause notices, the petitioners have a remedy to file their reply, submit requisite material and contest these on merits, and, if… the proper officer passes an order confirming the demand, the petitioners shall have a remedy of appeal before the Appellate Authority under Section 107 of the CGST Act of 2017.” In partial relief, the Court allowed:
1. Traders who have not yet replied to their showcause notices are to do so within four weeks from November 27. The proper officer must conclude proceedings within three months of receiving the reply.
2. Traders against whom final orders have already been issued are required to file appeals within three months from November 27.
