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.
* Petitions challenging only the Show Cause Notices (SCNs) were dismissed as premature.
* Petitions challenging confirmation orders were dismissed on the grounds of availability of an equally efficacious alternative statutory remedy (appeal under Section 107 of the CGST Act).

The Court issued the following directions:
* Petitioners who have not yet replied to the SCN under Section 74(1) must do so within four weeks. The proper officer must conclude the proceedings within three months thereafter.
* Petitioners against whom a final demand order has been passed have three months to file a statutory appeal under Section 107 of the CGST Act.

2. Core Issue

The central issue was the validity and legality of Show Cause Notices issued under Section 74(1) of the CGST Act, 2017, for non-payment of GST on cross-Line of Control (LoC) barter trade conducted during the financial years 2017-18 and 2018-19. The petitioners challenged the notices primarily on grounds of lack of jurisdiction, limitation, and improper invocation of provisions related to fraud and suppression.

3. Key Facts

• Background: The Governments of India and Pakistan established a cross-LoC barter trade system in 2008 as a Confidence Building Measure, governed by a Standard Operating Procedure (SOP).
• Pre-GST Era: 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 and J&K GST Acts in July 2017, no specific provision or exemption was made for this trade.
• Non-Payment of GST: The petitioners continued the cross-LoC trade without paying GST for the financial years 2017-18 and 2018-19, not reporting these transactions in their returns.
• Investigation & SCN: Based on an investigation, the GST authorities found that the petitioners had made significant outward and inward supplies without paying GST. Consequently, Show Cause Notices under Section 74(1) of the CGST Act were issued, alleging tax evasion through willful suppression of facts.
• Writ Petitions: The petitioners challenged these SCNs (and subsequent orders in some cases) directly in the High Court, claiming they were without jurisdiction, thereby bypassing the statutory appeal process.

4. Arguments

Petitioner's Arguments (led by Mr. S. F. Qadiri, Sr. Adv.)

1. Limitation: The SCNs issued under Section 74(1) were barred by the limitation period prescribed in the Act.
2. Wrongful Invocation of Section 74: The non-payment was not due to fraud, willful misstatement, or suppression of facts. The petitioners genuinely believed the trade was exempt, similar to the previous VAT regime. Therefore, Section 73 (for non-fraudulent cases) should apply, which has a shorter limitation period.
3. Impermissible Bunching: A single composite SCN for two different financial years (2017-18 and 2018-19) is not permissible under the GST law.
4. Nature of Trade: Initially pleaded that the trade was not an intra-state supply, but this point was later conceded during arguments, and it was accepted that the trade was intra-state.
5. Barter Trade Taxation: In a barter system with no currency exchange, taxing both outward and inward supplies would amount to double taxation.

Respondent's Arguments (led by Mr. Tahir Majid Shamsi, DSGI)

1. Jurisdiction: The cross-LoC trade is an "intra-state supply" as it occurs within the territory of the then State of J&K (which includes PoK as per the Constitution) and is taxable under the CGST/SGST Acts. No exemption notification exists for it.
2. Validity of Section 74: The invocation of Section 74 was justified as the petitioners willfully suppressed taxable supplies in their GSTR-1 and GSTR-3B returns to evade tax. This non-disclosure constitutes "suppression" as defined in the Act.
3. Within Limitation: The SCNs were issued well within the time limit prescribed under Section 74(10), which is five years from the extended due dates for filing the annual returns for FY 2017-18 and 2018-19.
4. Alternative Remedy: The petitioners have an effective statutory remedy of appeal under Section 107 of the CGST Act, and therefore, the writ petitions should not be entertained.

5. Court’s Reasoning

The Court framed six questions and answered them as follows:

1. Nature of LoC Trade: The trade is unequivocally an intra-state supply. Citing the definitions of "India" (Article 1 of the Constitution), "State" (J&K), and "intra-state supply" (Section 8, IGST Act), the Court held that since the supplier and place of supply are within the same State (J&K, which constitutionally includes PoK), the transactions fall under the ambit of the CGST/J&K GST Acts.
2. Applicability of Section 74 vs. 73: The Court found a prima facie case for invoking Section 74. The SCN specifically alleged willful non-cooperation with the investigation and suppression of facts by not declaring the transactions in returns. The Court concluded that the contents of the SCN were sufficient to bring the matter within the purview of Section 74(1), leaving the final determination to the adjudicating authority.
3. Limitation: The SCNs were not barred by limitation. The Court noted the extended due dates for filing annual returns (5th Feb 2020 for FY 2017-18 and 31st Dec 2020 for FY 2018-19). The SCNs, issued in August 2024/2025, were well within the statutory timeline of being issued at least six months before the expiry of the five-year period for passing an order under Section 74(10).
4. Bunching of SCNs: The Court held that issuing a composite SCN for multiple financial years is permissible under GST law, provided it contains a year-wise breakup of tax, interest, and penalty, specific allegations for each period, and each period is within limitation. The Court found the impugned SCNs met these criteria and caused no prejudice to the assessee.
5. Taxation of Barter Trade: The Court left this question open to be determined by the GST authorities during adjudication/appeal, declining to rule on the merits of how tax should be calculated on barter transactions.
6. Alternative Remedy: As the Court found the SCNs were not prima facie without jurisdiction, the writ petitions were not entertainable. The rule requiring exhaustion of statutory remedies must be followed. The petitioners should file a reply to the SCN or appeal the final order under Section 107, which is an equally efficacious remedy.

6. Statutory References

• Constitution of India: Article 1, Article 226
• 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 11 (Power to grant exemption)
  • Section 50 (Interest on delayed payment)
  • Section 73 (Determination of tax in non-fraud cases)
  • Section 74 (Determination of tax in fraud/suppression cases), specifically sub-sections (1), (2), (9), and (10)
  • Section 107 (Appeals to Appellate Authority)
• Integrated Goods and Services Tax Act, 2017 (IGST Act): Section 8 (Intra-State supply)
• J&K Value Added Taxes Act, 2005: Section 55 (Provision for zero-rated sale)

7. Precedents Cited

1. 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 can be entertained where there is a violation of fundamental rights, principles of natural justice, or the proceedings are wholly without jurisdiction.
2. M/s. Radha Krishan Industries vs. State of Himachal Pradesh and Ors [AIR 2021 Supreme Court 2114]: Reaffirmed the principles laid down in Whirlpool and summarized the law on the entertainability of writ petitions when an alternative statutory remedy is available.