The Jammu & Kashmir and Ladakh High Court has delivered a significant ruling, stating that trade across the Line of Control (LoC) between the Union Territory and Pakistan-Occupied Kashmir legally qualifies as intra-state trade and falls under the jurisdiction of the Goods and Services Tax (GST) Act. This decision came as the court dismissed a batch of petitions filed by traders challenging tax demands.
Court's Stance on Territorial Integrity and Trade
A division bench comprising Justices Sanjeev Kumar and Sanjay Parihar firmly observed that the territories currently under the de-facto control of Pakistan are legally an integral part of the erstwhile state of Jammu and Kashmir. Consequently, any commercial exchange within these areas is considered an internal state matter.
The bench clarified, "It is not disputed... that the area of the State presently under de-facto control of Pakistan is part of territories of the State of Jammu & Kashmir. Therefore... the cross-LoC trade... was nothing but an intra-state trade." This foundational principle formed the core of the court's judgment.
Background of the Petitions and Court's Findings
The case originated from writ petitions filed by traders who were engaged in cross-LoC trade, including barter and supply transactions, during the period from 2017 to 2019. These traders had challenged show-cause notices issued by tax authorities demanding GST payments.
They argued on various grounds, including the classification of the supply and the territorial nature of the trade. The petitioners contended that the trade, conducted via the agreed routes of Islamabad-Uri and from Rawalakot (PoK) to Chakkan-da-Bagh (Poonch), was a non-monetary barter system and should be treated as a zero-rated sale, exempt from sales tax.
However, the court found their arguments unpersuasive. It noted that the petitioners had prima facie suppressed material facts and were aware that no specific notification had been issued by the government under Section 11 of the CGST Act, 2017, to exempt this barter trade from tax.
Dismissal and Emphasis on Statutory Remedies
The two-judge bench ultimately dismissed all the pleas. The court underscored that it was the responsibility of the traders to self-assess and discharge their GST liability when filing their returns.
The ruling stated, "They were also aware that these supplies whether inward or outward were intra-state supplies and subject to GST in terms of section 7 of the CGST Act 2017."
Instead of entertaining the petitions, the court relegated the petitioners to the statutory remedies available under the CGST Act of 2017, highlighting the availability of an equally efficacious legal process within the tax framework itself. This landmark judgment comes in the backdrop of cross-LoC trade being officially barred since the Pulwama attack in 2019.
