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 orders confirming the demand were dismissed, with the petitioners relegated to the statutory remedy of appeal under Section 107 of the CGST Act, 2017.

The Court issued the following directions:
1. 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.
2. Petitioners against whom a final order has been passed have three months to file a statutory appeal under Section 107 of the CGST Act.

2. Core Issue

The core issue before the High Court 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 by the petitioners during the financial years 2017-18 and 2018-19. The petitioners challenged the notices on grounds of jurisdiction, limitation, and procedural impropriety.

3. Key Facts

• Nature of Business: The petitioners were traders engaged in the cross-LoC trade between J&K and Pakistan Occupied Kashmir (PoK) on the Srinagar-Muzaffarabad and Poonch-Rawalakote routes.
• Regulatory Framework: This trade, initiated in 2008 as a Confidence Building Measure, was a barter system (no currency exchange) regulated by a Standard Operating Procedure (SOP) issued by the Ministry of Home Affairs.
• Previous Tax Regime: Under the erstwhile 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 the CGST and J&K GST Acts from July 8, 2017, no specific provision or notification was issued to continue this exemption.
• Alleged Evasion: The petitioners did not declare their cross-LoC transactions in their GST returns for FY 2017-18 and 2018-19, nor did they pay any GST.
• Department Action: Based on an investigation, the GST authorities found significant outward and inward supplies had not been accounted for. Consequently, they issued composite Show Cause Notices (SCNs) under Section 74(1) of the CGST Act, alleging tax evasion through wilful suppression of facts.
• Legal Challenge: The petitioners, instead of replying to the SCNs, filed writ petitions challenging their validity on jurisdictional grounds, arguing that the availability of an alternative remedy is not a bar.

4. Arguments

Petitioners' Arguments:
1. Jurisdiction: The SCNs are without jurisdiction as the cross-LoC trade is not an intra-state supply amenable to the CGST Act (this point was later conceded by the senior counsel).
2. Limitation: The SCNs are time-barred under the period prescribed in Section 74 of the CGST Act.
3. Wrongful Invocation of Section 74: The non-payment was not due to fraud, wilful misstatement, or suppression. At best, it was a bona fide belief based on past practice, and the matter should fall under Section 73, which has a shorter limitation period.
4. Improper "Bunching": Issuing a single, composite SCN for two different financial years (2017-18 and 2018-19) is not permissible under the GST Act.
5. Barter Trade Taxation: In a barter system, taxing both the outward supply of goods and the inward receipt of goods amounts to double taxation.

Respondents' (Revenue) Arguments:
1. Taxability: Cross-LoC trade is an intra-state supply, as PoK is part of the territory of J&K, and is therefore taxable under the CGST/SGST Acts. No exemption notification exists for this trade.
2. Justification for Section 74: The invocation of Section 74 is justified as the petitioners wilfully suppressed their taxable supplies in their GST returns to evade tax. This evasion was only unearthed due to a departmental investigation.
3. Limitation: The SCNs were issued well within the five-year limitation period prescribed under Section 74(10), read with 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 the final 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: The trade is definitively intra-state. Citing the definition of "India" in the CGST Act and Article 1 of the Constitution, and the fact that PoK is part of the territory of J&K, the Court concluded that both the supplier and the place of supply are within the same state (then J&K).
2. Applicability of Section 74: The SCNs prima facie fall under Section 74. The notices alleged that the petitioners deliberately did not cooperate with the investigation, suppressed transactions, and failed in their statutory duty to self-assess and pay GST. These allegations form a prima facie basis for invoking provisions related to suppression of facts.
3. Limitation: The SCNs are not time-barred. The Court noted the extended due dates for filing annual returns for FY 2017-18 and 2018-19. The SCNs were issued well within the five-year period allowed under Section 74(10) for passing an order, and they also met the requirement of being issued at least six months prior to this deadline.
4. Bunching of SCNs: The "bunching" of multiple financial years in a single SCN is permissible. The GST Act does not prohibit it, provided the notice gives a year-wise breakup of demand, contains specific allegations, each period is within limitation, and it does not violate the principles of natural justice. The Court found these conditions were met.
5. Taxation of Barter Trade: The Court left this question open to be decided on merits by the GST authorities during the adjudication or appellate proceedings.
6. Alternative Remedy: Since the SCNs were not found to be without jurisdiction, the rule of alternative remedy applies. The petitioners have an efficacious statutory remedy to contest the SCNs before the adjudicating authority and to appeal any adverse order. Therefore, the High Court declined to exercise its writ jurisdiction.

6. Statutory References

• Constitution of India: Article 1, Article 226.
• Central Goods and Services Tax (CGST) Act, 2017:
  • Section 2(56) (Definition of "India")
  • Section 2(64) (Definition of "intra-State supply of goods")
  • Section 7 (Scope of Supply)
  • Section 50 (Interest on delayed payment of tax)
  • Section 73 (Determination of tax in non-fraud cases)
  • Section 74 (Determination of tax in cases of fraud, wilful misstatement, or suppression)
  • Section 107 (Appeals to Appellate Authority)
• Integrated Goods and Services Tax (IGST) Act, 2017: Section 8 (Intra-State supply).
• J&K Goods and Services Tax (J&K GST) Act, 2017: Section 2(103) (Definition of "State").
• J&K Value Added Taxes (VAT) Act, 2005: Section 55 (Provision for zero-rated sales).

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., a writ petition is maintainable where there is a violation of fundamental rights or 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]: Cited to reaffirm the principles governing the exercise of writ jurisdiction under Article 226, especially in the context of available statutory remedies.