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 petitioners were directed to file their replies to the SCNs within four weeks. The Proper Officer is to conclude the proceedings within three months thereafter.
* For cases where a final demand order was passed: The petitioners were granted three months to file a statutory appeal under Section 107 of the CGST Act, 2017.

The Court held that the petitions were either premature (challenging only an SCN) or should be dismissed due to the availability of an equally efficacious alternative remedy under the GST statute.

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, demanding GST on cross-Line of Control (LoC) trade conducted by the petitioners during the financial years 2017-18 and 2018-19. The petitioners challenged the notices primarily on grounds of lack of jurisdiction, limitation, and procedural impropriety.

3. Key Facts

• Background: In 2008, India and Pakistan initiated cross-LoC trade between two parts of Jammu & Kashmir as a confidence-building measure. This was a barter trade (goods for goods) with no currency exchange, regulated by a Standard Operating Procedure (SOP).
• Pre-GST Era: Under the J&K VAT Act, 2005, this cross-LoC trade was treated as a "zero-rated sale" and was exempt from tax.
• GST Implementation: With the rollout of the CGST and J&K GST Acts in July 2017, no specific exemption for cross-LoC trade was provided.
• Non-payment of GST: The petitioners continued the trade without paying GST, assuming the previous exempt status continued. They did not report these transactions in their GST returns for FY 2017-18 and 2018-19.
• Departmental Action: Following an investigation, the GST authorities found that the petitioners had not paid GST on their inward and outward supplies. Consequently, SCNs were issued under Section 74(1) of the CGST Act, alleging tax evasion through suppression of facts.
• Litigation: The petitioners challenged these SCNs (and subsequent demand orders in some cases) directly before the High Court via writ petitions, bypassing the statutory adjudication and appeal process.

4. Arguments

Petitioners’ Arguments:
1. Jurisdiction: The cross-LoC trade is not an "intra-state supply" and thus not subject to GST. (This point was later conceded during arguments).
2. Limitation: The SCNs issued under Section 74 are barred by the prescribed time limit.
3. Applicability of Section 74: The non-payment was not due to fraud, wilful misstatement, or suppression of facts. At most, it could be a case under Section 73, which has a shorter limitation period.
4. Procedural Impropriety: "Bunching" a single SCN for two different financial years (2017-18 and 2018-19) is not permissible under the law.
5. Barter Trade: Taxing both inward and outward supplies in a barter trade is inequitable.

Respondents’ (GST Department) Arguments:
1. Taxability: Cross-LoC trade is an intra-state supply and is taxable under GST as no exemption notification exists.
2. Applicability of Section 74: The petitioners deliberately suppressed taxable supplies in their returns to evade tax, correctly invoking the extended period of limitation under Section 74.
3. Limitation: The SCNs are well within the time limit prescribed under Section 74(10), read with the extended due dates for filing annual returns for the concerned years.
4. Alternative Remedy: The writ petitions are not maintainable as the petitioners have an effective statutory remedy of adjudication and appeal under Section 107 of the CGST Act.

5. Court’s Reasoning

The Court framed six questions and reasoned as follows:

1. Nature of LoC Trade: Based on the definitions of "India" (Article 1 of the Constitution, Section 2(56) of CGST Act) and "intra-state supply" (Section 8 of IGST Act), the Court held that the trade between J&K and Pakistan-occupied Kashmir (PoK) is a supply within the same State. Therefore, it is an intra-state supply and taxable under GST.
2. Applicability of Section 74: The Court found that the SCNs made out a prima facie case of "suppression of facts." The allegations of non-cooperation with the investigation and the fact that the evasion would have gone undetected without departmental inquiry were sufficient to invoke Section 74. The final determination on this was left to the adjudicating authority.
3. Limitation: The Court noted that the due date for filing annual returns for FY 2017-18 and FY 2018-19 was extended. The time limit for issuing an order under Section 74 is five years from this due date, and the SCN must be issued at least six months prior. The SCNs, issued in August 2024, were found to be well within the limitation period.
4. Bunching of Notices: The Court found no statutory bar on issuing a composite SCN for multiple tax periods, provided there is a year-wise quantification of demand, the allegations are specific, each period is within limitation, and no prejudice is caused to the assessee. The SCNs in question fulfilled these conditions.
5. Taxation of Barter Trade: The Court left this question open for the GST authorities to determine on merits.
6. Alternative Remedy: As the petitioners failed to establish a foundational defect like lack of jurisdiction or the SCNs being time-barred, the Court held that the writ petitions were not entertainable. Citing established principles, it ruled that the petitioners must exhaust the comprehensive statutory remedies of adjudication and appeal available under the CGST Act.

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 7 (Scope of Supply)
  • Section 11 (Power to grant exemption)
  • Section 50 (Interest)
  • Section 73 (Determination of tax for non-fraud cases)
  • Section 74 (Determination of tax for fraud/suppression cases)
  • 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 (J&K GST Act):
  • Section 2(103) (Definition of "State")
• J&K Value Added Taxes Act, 2005:
  • Section 55 (Pre-GST exemption for cross-LoC trade)

7. Precedents Cited

1. Whirlpool Corporation vs. Registrar of Trade Marks [1998 (8) SCC 1]: Cited to explain the exceptions (e.g., lack of jurisdiction, violation of natural justice) to the general rule of exhausting alternative remedies before approaching the High Court.
2. M/s. Radha Krishan Industries vs. State of Himachal Pradesh and Ors [AIR 2021 Supreme Court 2114]: Cited to reaffirm the principles governing the exercise of writ jurisdiction under Article 226, especially in the context of available statutory remedies.