HC holds cross-LoC barter trade taxable as intra-state supply, upholds GST Section 74 notices, and directs traders to pursue statutory remedies under the CGST Act.
Meetu Kumari | Dec 1, 2025 |
No GST Exemption for Cross-LoC Barter, GST Applicable Since PoK Part Of India: J&K High Court
A large group of traders involved in the historic cross-LoC barter trade between Jammu & Kashmir and Pakistan-occupied Kashmir approached the High Court challenging show cause notices issued under Section 74(1) of the CGST Act and J&K GST Act. The traders had been conducting barter-based cross-LoC exchanges pursuant to the 2008 SOP issued by the Ministry of Home Affairs. While these transactions were considered zero-rated under the erstwhile J&K VAT Act, no similar exemption existed once GST was introduced in 2017. Nonetheless, the petitioners continued treating the supplies as zero-rated and did not report them in GSTR-1/GSTR-3B, nor did they discharge any GST liability.
On information from DGGI, authorities initiated investigations and sought item-wise details of outward supplies to PoK and inward supplies received. Thereafter, the superintendent issued show cause notices. Several petitioners approached the Hon’ble Court against the same.
Main Issue: Whether the show cause notices issued under Section 74(1) for unreported cross-LoC supplies lacked jurisdiction, suffered from limitation, or were otherwise invalid to justify interference under Article 226 despite the availability of statutory remedies.
HC’s Decision: The High Court held that cross-LoC barter trade was legally an intra-state supply, since both outgoing and incoming supplies happened within the territory of India as defined under Article 1 of the Constitution and the GST enactments. With no GST exemption ever notified for such barter transactions, non-reporting of supplies and non-payment of tax constituted prima facie “suppression” within the meaning of Section 74. The Court also noted that the show cause notices said there was deliberate non-cooperation and non-declaration of transactions.
The Court held that all notices were issued well within the statutory window, six months prior to the expiry of the five years under Section 74(10). The bunching of two financial years was also held permissible so long as period-wise quantification and specific allegations were present, which the notices satisfied. Thus, the Court declined to entertain the writ petitions and directed the traders to respond to the notices or pursue appeals under Section 107.
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