Jammu Kashmir HC Rules Barter Trade Taxable, Cross-LoC Traders Lose Case   | Kashmir Life

SRINAGAR: The High Court of Jammu and Kashmir and Ladakh has declined to quash Goods and Services Tax (GST) show–cause notices issued to dozens of traders involved in the cross–Line of Control (LoC) barter trade, ruling that the tax authorities acted within their jurisdiction and that the petitioners must pursue the statutory appellate route.

A Division Bench of Justice Sanjeev Kumar and Justice Sanjay Parihar, in a 26-page judgment, dismissed 35 clubbed writ petitions filed by family-run trading firms of varying sizes and generations. The respondents in the case included the Union of India and GST authorities.

The bench held that the petitions were either premature or barred by the availability of an alternate remedy under Section 107 of the GST Act. Justice Kumar, writing for the court, said there was “prima facie suppression of material facts by the petitioners”, noting that traders were fully aware that no government notification had exempted cross-LoC barter trade from GST liability.

Launched in 2008 as a confidence-building measure between India and Pakistan, the cross-LoC trade allowed the barter of 21 items each way without currency transactions. Traders never paid VAT or GST on these supplies, continuing operations even after GST was introduced in 2017. When the Directorate General of GST Intelligence detected “huge outward and inward supplies” during 2017–18 and 2018–19, the Srinagar GST Range issued notices seeking tax, interest and penalties.

The petitioners argued that barter trade was exempt from GST and that imposing fresh liabilities would devastate small operators who worked on mutual trust across a conflict divide. They also contended that any notices should have been issued under Section 73 of the CGST Act, which applies in the absence of fraud or suppression and carries a shorter limitation period.

The court, however, found that the language of the notices clearly alleged deliberate non-cooperation, failure to declare supplies and suppression of facts. Citing specific paragraphs from the show-cause notices, the bench noted that the allegations were sufficient to invoke Section 74, which deals with cases involving suppression and carries a longer limitation period.

The judges also rejected the argument that the trade fell outside the GST framework. The bench said that although the cross-LoC barter was born out of political confidence-building efforts, the legal position remained that the areas under Pakistan’s control continue to form part of the territories of Jammu and Kashmir for taxation purposes. “Therefore, the location of the suppliers and the place of supply of goods were within the then State of Jammu and Kashmir,” Justice Kumar wrote. Counsel for the petitioners conceded this point during the proceedings.

The traders further contended that the notices were issued beyond the limitation period and that clubbing two financial years into one notice was illegal. The court dismissed both claims, holding that government notifications had extended annual return deadlines and that composite notices were permissible as long as year-wise calculations and allegations were clearly stated.

“The year-wise quantification of liability is clear, and the allegations are prima facie cogent and detailed,” the judgment observed.

The court directed petitioners who have not yet filed replies to do so within four weeks. Those who have received final orders have been given three months to file statutory appeals. The judges emphasised that their observations on the merits of the allegations were only prima facie and would not bind tax authorities during adjudication, though their legal findings would remain binding.

With this judgment, the court has signalled that traders must first exhaust the GST framework’s procedural remedies before seeking judicial intervention.