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

1. Outcome

The writ petitions were dismissed. The Court found no grounds to interfere with the show-cause notices (SCNs) or the subsequent demand orders.

The Court directed that:
* Petitioners who have not yet replied to the SCNs must do so within four weeks. The Proper Officer must conclude the proceedings within three months thereafter.
* Petitioners against whom final demand orders have been passed are given three months to file a statutory appeal under Section 107 of the CGST Act, 2017.

2. Core Issue

The central legal questions before the High Court were:
1. Whether the cross-Line of Control (LoC) barter trade between Jammu & Kashmir and Pakistan-occupied Kashmir (PoK) constitutes an "intra-state supply" and is therefore taxable under the CGST and J&K GST Acts, 2017.
2. Whether the show-cause notices issued under Section 74(1) of the CGST Act were valid, specifically concerning jurisdiction, limitation, invocation of "suppression of facts," and the bunching of two financial years into a single notice.

3. Key Facts

• Background: In 2008, India and Pakistan established a cross-LoC barter trade as a Confidence Building Measure, governed by a Standard Operating Procedure (SOP).
• Pre-GST Regime: Under the J&K VAT Act, 2005, this trade was treated as a "zero-rated sale" and was not subject to tax.
• GST Implementation: With the rollout of the CGST/J&K GST Acts in July 2017, no specific provision or notification was issued to continue the tax-exempt status of the cross-LoC trade.
• Non-Payment of GST: The petitioners continued the trade during the financial years 2017-18 and 2018-19 without paying GST, believing it to be exempt and did not declare these transactions in their GST returns.
• Investigation & SCN: Based on an investigation, the GST authorities found that the petitioners had made substantial outward and inward supplies without paying the applicable GST. Consequently, they issued show-cause notices under Section 74(1) of the CGST Act, alleging tax evasion through suppression of facts.
• Writ Petitions: The petitioners challenged the SCNs directly in the High Court, claiming they were without jurisdiction, instead of pursuing the statutory remedy of replying to the notice or filing an appeal.

4. Arguments

Petitioners' Arguments:

• The SCNs are without jurisdiction as the cross-LoC trade is not an intra-state supply. (This point was later conceded by the Senior Counsel).
• The notices issued under Section 74 are time-barred.
• The invocation of Section 74 (for fraud/suppression) is incorrect; the case, if any, should fall under Section 73 (for reasons other than fraud), which has a shorter limitation period.
• Issuing a single composite (bunched) SCN for two different financial years (2017-18 and 2018-19) is not permissible under the law.
• In a barter trade, taxing both the outward and inward supplies amounts to double taxation.

Respondents' (GST Department) Arguments:

• Cross-LoC trade is an intra-state supply, as PoK is constitutionally part of the territory of India, and is therefore taxable under GST. No exemption has been granted.
• Section 74 was rightly invoked as the petitioners willfully suppressed taxable supplies by not declaring them in their GSTR-1 and GSTR-3B returns, with an intent to evade tax.
• The SCNs are well within the limitation period prescribed under Section 74(10), considering the extended due dates for filing annual returns for the relevant years.
• The petitions are not maintainable due to the availability of an effective alternative statutory remedy (replying to SCN and filing an appeal under Section 107).

5. Court’s Reasoning

The Court framed six questions and answered them as follows:

1. Nature of LoC Trade: The Court held that the cross-LoC trade is an intra-state supply. It reasoned that under the CGST Act and Article 1 of the Constitution, "India" includes the entire territory of the erstwhile state of Jammu & Kashmir. Therefore, a trade where the supplier and place of supply are both within this territory qualifies as an intra-state supply.
2. Applicability of Section 74: The Court found that the SCNs made a prima facie case for "suppression of facts." The petitioners were aware that there was no GST exemption, yet they failed to declare these transactions in their returns under the self-assessment scheme. This non-declaration and non-cooperation with the investigation justified the invocation of Section 74.
3. Limitation: The SCNs were not barred by limitation. The Court noted the extended due dates for filing annual returns for FY 2017-18 (5th Feb 2020) and FY 2018-19 (31st Dec 2020). The SCNs were issued in August 2024, which was well within the time limit required (at least six months before the expiry of five years from the due date) for passing an order under Section 74(10).
4. Bunching of Notices: The Court ruled that issuing a composite SCN for multiple years is permissible provided it contains a year-wise quantification of demand, specific allegations, is within limitation for each period, and does not cause prejudice to the assessee. The impugned notices met these requirements.
5. Taxation of Barter Trade: The Court left this question open to be decided by the GST authorities during adjudication or appeal.
6. Alternative Remedy: Since the Court found that the SCNs were not without jurisdiction, it held that the petitioners must exhaust the equally efficacious statutory remedies available under the CGST Act. The writ petitions were therefore not entertainable, being either premature (challenging SCNs) or having a clear appellate remedy (challenging final orders).

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 2(56): Definition of "India"
  • Section 2(64): Definition of "intra-State supply of goods"
  • Section 7: Scope of supply
  • Section 73: Determination of tax for reasons other than fraud/suppression
  • Section 74: Determination of tax by reason of fraud/suppression
  • Section 107: Appeals to Appellate Authority
• Integrated Goods and Services Tax Act, 2017 (IGST Act):
  • Section 8: Definition of intra-State supply
• Jammu and Kashmir Value Added Taxes Act, 2005:
  • Section 55: Provision treating cross-LoC trade as a zero-rated sale (repealed)
• Constitution of India:
  • Article 1: Name and territory of the Union
  • Article 226: Power of High Courts to issue certain writs

7. Precedents Cited

• Whirlpool Corporation vs. Registrar of Trade Marks [1998 (8) SCC 1]: Cited to establish the exceptions to the rule of alternative remedy, i.e., writ petitions are maintainable where there is a violation of fundamental rights, principles of natural justice, proceedings are without jurisdiction, or the vires of an Act is challenged.
• M/s. Radha Krishan Industries vs. State of Himachal Pradesh [AIR 2021 SC 2114]: Cited to reaffirm the principles laid down in Whirlpool and to emphasize that when a statute creates a right and also prescribes a remedy, that statutory remedy must be resorted to before invoking writ jurisdiction.