In a significant legal ruling that reinforces India's territorial claims, the Jammu and Kashmir High Court has declared that trade across the Line of Control (LoC) constitutes intra-state commerce rather than import-export activity between nations. The landmark judgment comes as the court dismissed multiple petitions challenging tax notices issued under the GST regime for cross-LoC trade transactions.
Historical Context and Legal Challenge
The court was hearing petitions connected to the cross-LoC trade that began in 2008 as part of confidence-building measures between India and Pakistan. This trade initiative involved two designated points - Uri in Kashmir and Poonch in Jammu - and operated on a barter system with no currency exchange.
Trade was suspended following the February 14, 2019 Pulwama car bomb attack that killed 40 paramilitary personnel and brought India and Pakistan to the brink of war. The legal challenge emerged when petitioners contested show-cause notices issued by the Superintendent, CGST, Srinagar for inward and outward supplies in cross-LoC trade from 2017, when GST was implemented, until the trade suspension in 2019.
Court's Landmark Ruling
Justice Sanjeev Kumar and Justice Sanjay Parihar delivered the crucial judgment stating that Pakistan Occupied Kashmir (PoK) is part of Indian territory, making cross-LoC trade intra-state commerce. The bench observed that it was undisputed by either side's counsel that the area under Pakistan's de-facto control constitutes part of Jammu & Kashmir's territories.
The court specifically noted: "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 intra-state trade."
Taxation Implications and Petitioner Arguments
When cross-LoC trade commenced in 2008, it was governed by the Jammu and Kashmir Value Added Taxes 2005, which made it zero-tax trade. However, when GST was implemented in 2017, no specific tax exemption was provided for this trade.
The petitioners had argued that cross-LoC trade represented import and export between two countries and was regulated by a Standard Operating Procedure (SOP) issued by the central government, making it outside GST provisions. They also claimed no willful misrepresentation or fraud on their part.
However, the court found that petitioners were well aware of the absence of tax exemption under GST for cross-LoC barter trade and had prima facie suppressed material facts by not declaring these transactions in their returns.
Legal Consequences and Future Proceedings
While dismissing the petitions, the court provided petitioners with a four-week window to file responses to the show-cause notices, noting they have "equally efficacious alternative remedy under the statute."
The judgment reinforces India's consistent position on PoK being an integral part of the country while clarifying the tax treatment of cross-LoC trade activities. The ruling establishes that traders must comply with GST regulations for such transactions, treating them as domestic commerce rather than international trade.
This decision marks a significant development in the legal interpretation of cross-LoC trade and strengthens India's constitutional position on the status of Pakistan Occupied Kashmir while providing clarity on tax obligations for businesses engaged in such trade activities.
