Holds Cross-LoC Trade as Intra-State
Upholds Tax Notices
Directs Traders to Use Statutory Remedies
FIRDOUS AHMAD
SRINAGAR, Dec 1: In a unanimous judgment delivered by a bench of the High Court of Jammu & Kashmir and Ladakh, comprising Justice Sanjay Parihar and Justice Sanjeev Kumar, a long-standing constitutional and commercial debate has been settled with far-reaching clarity. The Court declared that trade across the Line of Control (LoC) with Pakistan-Occupied Kashmir (PoK) is not an international exchange but an intra-state commercial activity within India’s sovereign territory, thereby attracting Goods and Services Tax (GST) under domestic law.
The ruling came in a batch of writ petitions filed by traders challenging GST demands and show-cause notices issued by central tax authorities. While the petitions were dismissed on procedural grounds, the substantive observations made by the bench have reinforced India’s constitutional and territorial stance on PoK—affirming it as part of the erstwhile State of Jammu and Kashmir, now a Union Territory under Indian administration.
Presiding over the case, Justice Parihar and Justice Kumar meticulously examined the legal, historical and territorial dimensions of cross-LoC trade. They highlighted that the 2008 trade arrangement between India and Pakistan—a Confidence Building Measure (CBM) allowing barter trade on Srinagar-Muzaffarabad and Poonch-Rawalakot routes—was never meant to grant international or “export-import” status to such exchanges. Rather, it was designed to facilitate commerce between divided parts of the same state.
The judges observed that, under the constitutional scheme reflected in Article 1 of the Constitution of India and the definition of “India” under Section 2(56) of the CGST Act, PoK falls within the territory of Jammu and Kashmir. Justice Parihar, writing for the bench, remarked: “It is not disputed 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, the location of suppliers and place of supply in cross-LoC trade is within the same State.”
This foundational conclusion directly shaped the Court’s ruling on the taxability of such trade. The bench noted that while the erstwhile Jammu & Kashmir Value Added Tax Act, 2005 had explicitly zero-rated cross-LoC trade, the GST regime—which came into force in July 2017—contained no such exemption. Justice Kumar, in a concurring analysis, underscored that “in the absence of a specific notification exempting cross-LoC barter trade, these supplies are intra-state and fully taxable under Section 7 of the CGST Act.”
The counsel for petitioners and respondents argued on several technical fronts—including the permissibility of “bunching” tax notices for multiple financial years and the applicability of limitation under Section 74. The bench, however, found no legal infirmity in the procedural approach of the tax department, noting that the show-cause notices issued in August 2024 were well within the limitation period and provided adequate detail to the traders. Advocate Waseem Gul represented J&K UT as respondents.
On the question of alternative remedy—a pivotal aspect of the ruling—Justice Parihar reiterated settled jurisprudence that the High Court’s writ jurisdiction under Article 226 is discretionary and not to be invoked when a statutory remedy is available, barring exceptional circumstances. “The petitioners have the recourse to file a reply before the proper officer and, if aggrieved by the final order, to prefer an appeal under Section 107 of the CGST Act. No extraordinary circumstance exists to bypass this statutory framework,” the bench held.
While dismissing all petitions, the bench issued clear timelines: traders must file replies to pending show-cause notices within four weeks, and the tax authority must conclude proceedings within three months of receiving such replies. For those against whom final orders have already been passed, a three-month appeal window remains open.
Significantly, the Court clarified that while its observations on the taxability and territorial status are binding on the parties, the factual adjudication of tax liability remains with the proper officer and appellate authorities.
The judgment—authored by Justice Sanjay Parihar and concurred with by Justice Sanjeev Kumar—not only resolves a contentious tax dispute but also strengthens India’s legal and diplomatic stance on Jammu and Kashmir. By classifying LoC trade as “intra-state,” the bench has effectively neutralized any implied recognition of PoK as foreign territory, embedding the principle of territorial integrity into commercial and fiscal law.
Legal experts view this verdict as a landmark reinforcement of sovereignty through judicial interpretation, setting a precedent that may influence future policy and legal engagements concerning territories under illegal occupation.
