M/S New Gee Enn & Sons vs . Union Of India & Ors. on 27 November, 2025

1. Outcome

The High Court dismissed the batch of writ petitions.
* For cases at the Show Cause Notice (SCN) stage: The petitions were dismissed as premature. Petitioners were directed to file replies to the SCNs within four weeks, and the proper officer was directed to adjudicate the matter within three months thereafter.
* For cases where a final order has been passed: Petitioners were relegated to the statutory remedy of appeal under Section 107 of the CGST Act, 2017, and were given three months to file such appeals.
* The Court clarified that its observations on the merits of the case are prima facie and not binding on the adjudicating/appellate authorities, but the legal questions determined are binding.

2. Core Issue

The central issue was the validity of Show Cause Notices issued under Section 74(1) of the CGST Act, 2017, for the non-payment of GST on cross-Line of Control (LoC) barter trade conducted during the financial years 2017-18 and 2018-19.

The key legal questions adjudicated were:
* Whether the cross-LoC trade qualifies as a taxable "intra-state supply" under the GST regime.
* Whether the invocation of Section 74 (which pertains to fraud, wilful misstatement, or suppression of facts) was justified, as opposed to Section 73 (for other cases).
* Whether the SCNs were barred by the limitation period prescribed under Section 74.
* Whether issuing a single "bunched" SCN for two different financial years is legally permissible.
* Whether the writ petitions were maintainable given the availability of alternative statutory remedies.

3. Key Facts

• In 2008, India and Pakistan initiated cross-LoC trade between parts of Jammu & Kashmir as a Confidence Building Measure. This was a barter trade, regulated by a Standard Operating Procedure (SOP), with no exchange of currency.
• Under the pre-GST regime (J&K VAT Act, 2005), this trade was treated as a "zero-rated sale" and was not taxed.
• With the implementation of the GST Acts from July 8, 2017, no specific provision or exemption was provided for this trade.
• The petitioners, who were engaged in this trade, did not declare these transactions in their GST returns nor did they pay GST on them for the financial years 2017-18 and 2018-19.
• Based on an investigation, the GST authorities concluded that GST was evaded. They issued SCNs under Section 74(1) of the CGST Act, alleging suppression of facts to evade tax.
• The petitioners challenged the legality of these SCNs directly before the High Court via writ petitions, arguing they were without jurisdiction.

4. Arguments

Petitioners' Arguments:
1. Jurisdiction: The SCNs are without jurisdiction as the case does not involve fraud or suppression of facts; at most, it should fall under Section 73 of the CGST Act, which has a shorter limitation period.
2. Limitation: The SCNs issued under Section 74 are barred by limitation.
3. Bunching: A single composite SCN for two different financial years (2017-18 and 2018-19) is not permissible under the law.
4. Nature of Trade: Initially pleaded that the trade was not intra-state, but later conceded during arguments that it was indeed an intra-state trade.
5. Barter Trade: Argued that taxing both outward and inward supplies in a barter system where goods are exchanged for goods of equal value would amount to double taxation (this point was left open by the Court).

Respondents' (Revenue's) Arguments:
1. Taxability: The cross-LoC trade is an intra-state supply and is taxable under GST as no exemption notification exists.
2. Suppression: Section 74 was rightly invoked as the petitioners deliberately suppressed their taxable supplies in their GSTR-1 and GSTR-3B returns with an intent to evade tax.
3. Limitation: The SCNs were issued well within the five-year limitation period prescribed under Section 74(10), considering the extensions granted for filing annual returns for the relevant years.
4. Alternative Remedy: The petitions should be dismissed as the petitioners have an equally efficacious statutory remedy of appeal under Section 107 of the CGST Act.

5. Court’s Reasoning

The Court addressed the issues systematically:
1. Nature of LoC Trade: The Court held that the trade is an intra-state supply. It reasoned that Pakistan-occupied Kashmir (PoK) is constitutionally part of the territory of the State of Jammu & Kashmir. Therefore, a supply where the supplier and the place of supply are both within the territory of the erstwhile State of J&K falls under the definition of "intra-state supply" as per Section 8 of the IGST Act.
2. Applicability of Section 74: The Court found that the SCNs made out a prima facie case for suppression of facts. The notices alleged that the petitioners, despite being aware of the absence of a GST exemption, failed to self-assess and declare the transactions. This non-disclosure and non-cooperation with the investigation justified the invocation of Section 74. The Court left the final determination on this fact to the adjudicating authority.
3. Limitation: The Court concluded that the SCNs were not barred by limitation. The time limit for issuing an order under Section 74 is five years from the due date of the annual return, and the SCN must be issued at least six months prior to this deadline. Factoring in the official extensions for filing annual returns for FY 2017-18 and 2018-19, the SCNs were found to have been issued within the prescribed time frame.
4. Bunching of Notices: The Court held that there is no statutory bar on issuing a composite SCN for multiple financial years, provided it meets the principles of natural justice by providing a year-wise breakup of tax, interest, and penalty, contains specific allegations, and each period is within limitation. The Court found the impugned notices met these criteria.
5. Alternative Remedy: Since the Court found no fundamental jurisdictional error in the SCNs, it held that the writ petitions were not entertainable. Citing established Supreme Court precedents, it ruled that the petitioners must exhaust the statutory remedies available under the GST Act—first, by replying to the SCN and participating in adjudication, and second, by appealing any adverse order.

6. Statutory References

• Constitution of India: Article 1, Article 226
• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Sections 2(56) ["India"], 2(64) ["intra-State supply"]
  • Sections 7 ["Scope of Supply"], 11 ["Power to grant exemption"]
  • Section 50 ["Interest"]
  • Section 73 ["Determination of tax... other than fraud"]
  • Section 74 ["Determination of tax... by reason of fraud... or suppression"]
  • Section 107 ["Appeals to Appellate Authority"]
• Integrated Goods and Services Tax Act, 2017 (IGST Act): Section 8 ["Intra-State supply"]
• J&K Goods and Services Act, 2017: Section 2(103) ["State"]
• J&K Value Added Taxes Act, 2005: Section 55 (for historical context)

7. Precedents Cited

• Whirlpool Corporation vs. Registrar of Trade Marks [1998 (8) SCC 1]: On the exceptions to the rule of alternative remedy (violation of fundamental rights, principles of natural justice, order without jurisdiction, or challenge to vires of an Act).
• M/s. Radha Krishan Industries vs. State of Himachal Pradesh and Ors [AIR 2021 Supreme Court 2114]: Reaffirming the principles laid down in Whirlpool regarding the High Court's discretion in entertaining writ petitions where an alternative remedy exists.