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

Judgment Summary: M/S New Gee Enn & Sons vs. Union Of India & Ors.

Date of Judgment: 27 November, 2025
Court: High Court of Jammu & Kashmir and Ladakh at Srinagar

1. Outcome

The writ petitions were dismissed. The Court declined to interfere with the Show Cause Notices (SCNs) and subsequent demand confirmation orders, relegating the petitioners to the statutory remedies available under the CGST Act, 2017.

Specific directions were issued:
* Petitioners who have not 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 granted 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, demanding GST on cross-Line of Control (LoC) barter trade conducted during the financial years 2017-18 and 2018-19. The Court examined whether the SCNs were without jurisdiction on grounds of limitation, applicability of the charging section (Section 74 vs. Section 73), and procedural irregularities like bunching of tax periods.

3. Key Facts

• Background: In 2008, India and Pakistan initiated cross-LoC trade on specified routes (Srinagar-Muzaffarabad and Poonch-Rawalakote) as a Confidence Building Measure. The trade was governed by a Standard Operating Procedure (SOP) and operated on a barter system without currency exchange.
• Pre-GST Era: Under the J&K VAT Act, 2005, this trade was treated as a "zero-rated sale" and was exempt from tax.
• GST Implementation: With the rollout of GST from July 8, 2017, no specific exemption for cross-LoC trade was provided under the CGST Act or the J&K GST Act.
• Non-payment of Tax: The petitioners (traders) continued the cross-LoC trade without paying GST, believing it to be exempt and did not declare these transactions in their GST returns for FY 2017-18 and 2018-19.
• Investigation & SCN: Based on an investigation, the GST authorities found that the petitioners had made significant outward and inward supplies without paying the applicable GST. Consequently, Show Cause Notices under Section 74(1) of the CGST Act were issued, alleging tax evasion by suppression of facts.
• Writ Petitions: The petitioners challenged the SCNs (and demand orders in some cases) directly before the High Court, claiming they were without jurisdiction, thereby bypassing the statutory remedy of appeal.

4. Arguments

Petitioner's Arguments (M/S New Gee Enn & Sons):
1. Jurisdiction: Initially argued that the cross-LoC trade was not an intra-state supply, but later conceded that it was.
2. Limitation: The SCNs issued under Section 74 were barred by limitation.
3. Applicability of Section 74: The non-payment of tax was not due to fraud, wilful misstatement, or suppression of facts. It was a bona fide belief based on the previous tax regime. Therefore, proceedings should have been initiated under Section 73 (which has a shorter limitation period), not Section 74.
4. Procedural Impropriety: Bunching of two different financial years (2017-18 and 2018-19) in a single SCN is not permissible.
5. Barter Trade: In a barter system, taxing both inward and outward supplies would amount to double taxation.

Respondent's Arguments (Union of India & Ors.):
1. Taxability: The cross-LoC trade is an intra-state supply and is taxable under GST, as no exemption has been granted.
2. Applicability of Section 74: Section 74 was correctly invoked as the petitioners deliberately and wilfully suppressed their taxable supplies in their GST returns to evade tax. This suppression was only unearthed through investigation.
3. Limitation: The SCNs were issued well within the five-year limitation period prescribed under Section 74(10), calculated from the extended due dates for filing annual returns.
4. Alternative Remedy: The writ petitions are not maintainable as the petitioners have an effective statutory remedy of replying to the SCN and, if aggrieved by an order, filing an appeal under Section 107 of the CGST Act.

5. Court’s Reasoning

The Court framed six questions and answered them as follows:

1. Nature of LoC Trade: Based on the definitions in the CGST Act and Article 1 of the Constitution, the Court held that the trade between Jammu & Kashmir and Pakistan-occupied Kashmir (PoK) constitutes an intra-state supply, as PoK is part of the territory of India.
2. Applicability of Section 74: The Court found that the SCNs prima facie made out a case for suppression of facts. The petitioners, being registered taxpayers, had a statutory duty of self-assessment and were aware that no GST exemption existed for the trade. Their failure to declare transactions, cooperate with the investigation, and furnish information justified the invocation of Section 74.
3. Limitation: The Court calculated the time limits and found the SCNs were not barred by limitation. The due date for filing the annual return for FY 2017-18 was extended to Feb 5, 2020, and for FY 2018-19 to Dec 31, 2020. The SCNs issued in August 2024 were well within the five-year period for passing an order under Section 74(10).
4. Bunching of Tax Periods: The Court held that there is no statutory bar on issuing a composite SCN for multiple financial years, provided there is a clear, year-wise quantification of demand and the notice is not vague. The SCNs met these criteria.
5. Taxation of Barter Trade: The Court left this question open to be decided by the adjudicating/appellate authorities under the GST Act.
6. Alternative Remedy: Since the SCNs were not found to be wholly without jurisdiction, the Court held that the writ petitions were not entertainable. It emphasized the settled legal principle that the High Court should not exercise its writ jurisdiction when an equally efficacious statutory remedy is available, except in specific circumstances (violation of fundamental rights, principles of natural justice, or lack of jurisdiction), which were not present here.

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 from tax)
  • Section 73 (Determination of tax for reasons other than fraud)
  • Section 74, specifically 74(1), 74(2), 74(9), 74(10) (Determination of tax for fraud, wilful-misstatement or suppression of facts)
  • 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")
• Jammu and Kashmir Value Added Taxes Act, 2005 (VAT Act): Section 55

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 proceedings are without jurisdiction, violate principles of natural justice, or infringe fundamental rights.
2. M/s. Radha Krishan Industries vs. State of Himachal Pradesh and Ors. (AIR 2021 SC 2114): Cited to reaffirm and elaborate upon the principles governing the exercise of writ jurisdiction when an alternative statutory remedy is available.