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
Bench: Hon’ble Mr. Justice Sanjeev Kumar & Hon’ble Mr. Justice Sanjay Parihar

1. Outcome

The writ petitions were dismissed. The Court declined to interfere with the show-cause notices (SCNs) and demand orders, relegating the petitioners to the statutory remedies available under the CGST Act, 2017.

The Court directed that:
* Petitioners who have only received an SCN must file their reply within four weeks, and 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 taxability of cross-Line of Control (LoC) barter trade under the GST regime and the jurisdictional validity of the show-cause notices issued under Section 74(1) of the CGST Act, 2017, for non-payment of GST on such trade for the financial years 2017-18 and 2018-19.

3. Key Facts

• Background: In 2008, India and Pakistan initiated cross-LoC trade between parts of Jammu & Kashmir as a Confidence Building Measure. The trade was a barter system (goods for goods) 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 exempt from tax.
• GST Implementation: With the rollout of GST in July 2017, no specific exemption was provided for cross-LoC trade.
• Dispute: The petitioners, who were engaged in this trade, did not declare these transactions in their GST returns for FY 2017-18 and 2018-19, nor did they pay any GST, believing the previous exemption continued.
• Department's Action: Based on an investigation, the GST authorities found non-payment of tax on what they considered taxable supplies. Consequently, they issued show-cause notices to the petitioners under Section 74(1) of the CGST Act, alleging tax evasion through willful suppression of facts.
• Legal Challenge: The petitioners challenged the SCNs (and subsequent demand orders in some cases) directly before the High Court through writ petitions, primarily on grounds of lack of jurisdiction, limitation, and other legal infirmities.

4. Arguments

Petitioners' Arguments:

1. Jurisdiction: The SCNs were without jurisdiction as the cross-LoC trade was not an intra-state supply amenable to the CGST/JKGST Act. (This point was later conceded during arguments).
2. Limitation: The notices issued under Section 74 were time-barred.
3. Wrongful Invocation of Section 74: The non-payment was not due to fraud, willful misstatement, or suppression of facts. It was a bona fide belief based on the previous tax regime. Therefore, Section 73 (for non-fraudulent cases) should apply, 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 law.
5. Barter Trade Taxation: Tax cannot be levied on both outward and inward supplies in a barter system where goods are exchanged for goods of equivalent value.

Respondents' (GST Department) Arguments:

1. Nature of Supply: The cross-LoC trade is an "intra-state supply" as it occurs within the territory of the State of Jammu & Kashmir (which includes Pakistan Occupied Kashmir) and is therefore taxable under GST.
2. Justification for Section 74: The petitioners deliberately and willfully suppressed their taxable supplies in their GST returns to evade tax, justifying the invocation of Section 74.
3. Limitation: The SCNs were issued well within the five-year limitation period prescribed under Section 74(10), considering the extended due dates for filing annual returns for the relevant years.
4. Alternative Remedy: The petitioners have an effective statutory remedy of appeal under Section 107 of the CGST Act, and the writ petitions should be dismissed on this ground.

5. Court’s Reasoning

The Court systematically addressed the questions of law raised:

1. Nature of LoC Trade: The Court held that the trade was unequivocally an "intra-state supply". Citing the definitions of "India" and "State" under the Constitution and GST laws, it reasoned that since PoK is constitutionally part of the territory of Jammu & Kashmir, transactions between the two parts occur within the same state.
2. Applicability of Section 74: The Court found that the SCNs prima facie made a case for "suppression of facts." The notices alleged deliberate non-cooperation with investigations and failure to self-assess and declare transactions as required by law. Therefore, invoking Section 74 (for fraud/suppression) was not without basis.
3. Limitation: The SCNs were held to be within the time limit. The Court noted the extended due dates for filing annual returns for FY 2017-18 and 2018-19. It calculated that the SCNs were issued at least six months prior to the expiry of the five-year period for passing an order, as mandated by Section 74.
4. Bunching of Notices: The Court found no prohibition in the GST Act against issuing a composite SCN for multiple years, provided it includes a year-wise breakup of liability, specific allegations, and each period is within its limitation. The Court found the impugned notices met these criteria.
5. Taxation in Barter Trade: The Court left this question open to be decided on merits by the adjudicating/appellate authorities.
6. Alternative Remedy: Since the petitioners' primary challenge regarding jurisdiction and limitation failed, the Court ruled that there was no valid reason to bypass the statutory remedy. Citing established precedents, it held that the petitioners must exhaust the remedies of reply to the SCN and appeal under the CGST Act.

6. Statutory References

• Constitution of India: Article 1, Article 226
• Central Goods and Services Tax Act, 2017 (CGST Act): Sections 2(56), 2(64), 7, 11, 50, 73, 74, 107.
• J&K Goods and Services Act, 2017 (JKGST Act): Section 2(103).
• Integrated Goods and Services Tax Act, 2017 (IGST Act): Section 8.
• Jammu and Kashmir Value Added Taxes Act, 2005: Section 55.

7. Precedents Cited

• Whirlpool Corporation vs. Registrar of Trade Marks [1998 (8) SCC 1]
• M/s. Radha Krishan Industries vs. State of Himachal Pradesh and Ors. [AIR 2021 Supreme Court 2114]