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

Judgment Summary

Case Title: 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 orders, relegating the petitioners to the statutory remedies available under the CGST Act, 2017.

Specific directions issued by the Court:
* Petitioners who have only received an SCN must file their reply within four weeks. The Proper Officer is directed to conclude the proceedings within three months thereafter.
* Petitioners against whom a final demand order under Section 74(9) has been passed are granted three months to file a statutory appeal under Section 107 of the CGST Act.
* The Court clarified that its prima facie observations on the merits should not influence the departmental authorities, who must adjudicate the matter independently.

2. Core Issue

The central legal questions before the Court were:
* Whether the cross-Line of Control (LoC) trade, conducted as a barter between traders in Jammu & Kashmir and Pakistan Occupied Kashmir (PoK), constitutes an "intra-state supply" taxable under the CGST/J&K GST Acts, 2017.
* Whether the Show Cause Notices issued by the GST authorities under Section 74(1) of the CGST Act were valid, specifically concerning jurisdiction, limitation, invocation of provisions for fraud/suppression, and the permissibility of issuing a single notice for multiple financial years.

3. Key Facts

• The petitioners are traders who were engaged in the cross-LoC trade between J&K and PoK, which was initiated in 2008 as a Confidence Building Measure.
• The trade was conducted on a barter basis (goods for goods) without any currency exchange, governed by a Standard Operating Procedure (SOP) issued by the Ministry of Home Affairs.
• Under the erstwhile J&K VAT Act, 2005, this trade was treated as a "zero-rated sale" and was exempt from tax.
• After the implementation of GST from July 8, 2017, there was no specific provision or notification exempting this trade. The petitioners continued their business without paying GST on these transactions for the financial years 2017-18 and 2018-19.
• Following an investigation, the GST authorities found that the petitioners had not declared these supplies in their returns. Consequently, SCNs were issued under Section 74(1) of the CGST Act, alleging tax evasion through suppression of facts.
• The petitioners challenged the SCNs (and in some cases, the subsequent demand orders) directly before the High Court, claiming they were without jurisdiction.

4. Arguments

Petitioners' Arguments:
* The cross-LoC trade is not an intra-state supply and thus not taxable under the CGST Act. (This point was later conceded during arguments).
* The SCNs issued under Section 74 are time-barred as per the limitation period prescribed in the Act.
* The case does not involve fraud, wilful misstatement, or suppression of facts. At most, it could fall under Section 73 (normal tax period) and not Section 74 (extended period).
* Issuing a single "bunched" SCN for two different financial years (2017-18 and 2018-19) is not permissible under law.
* In a barter trade, taxing both outward and inward supplies would amount to double taxation.

Respondents' (Revenue's) Arguments:
* The cross-LoC trade is an intra-state supply because PoK is constitutionally part of the territory of India and the then State of J&K.
* Section 74 was correctly invoked as the petitioners wilfully suppressed their taxable turnover by not declaring it in their GSTR-1 and GSTR-3B returns, with an intent to evade tax.
* 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.
* The petitioners should be relegated to the statutory alternative remedies of replying to the SCN or filing an appeal, as the SCNs are not without jurisdiction.

5. Court’s Reasoning

The Court analyzed the issues systematically and held as follows:
* Nature of LoC Trade: The Court affirmed that the trade is intra-state. Citing the definition of "India" in the CGST Act, Article 1 of the Constitution, and the definition of "State" in the J&K GST Act, it concluded that since PoK is part of the territory of the State of J&K, supplies between J&K and PoK are intra-state supplies.
* Applicability of Section 74: The Court found the invocation of Section 74 to be prima facie justified. The SCNs alleged non-cooperation with investigations and deliberate non-disclosure of supplies, which falls under the definition of "suppression" in Explanation 2 to Section 74.
* Limitation Period: The SCNs were not barred by limitation. The Court noted the extended due dates for filing annual returns for FY 2017-18 (Feb 5, 2020) and FY 2018-19 (Dec 31, 2020). The five-year period for issuing an order under Section 74(10) would therefore expire on Feb 5, 2025, and Dec 31, 2025, respectively. The SCNs, issued in August 2024, were well within this timeline and also complied with the requirement of being issued at least six months before the final order deadline.
* Bunching of Notices: The Court held that a composite SCN for multiple financial years is permissible as there is no statutory prohibition. It is valid as long as it provides a year-wise breakup of demand, contains specific allegations, each period is within limitation, and it does not cause prejudice to the assessee. The impugned notices met these criteria.
* Alternative Remedy: Since the SCNs were not found to be prima facie without jurisdiction, the Court upheld the principle of exhaustion of alternative remedies. The petitioners have an effective statutory remedy to contest the SCNs before the adjudicating authority and to appeal any adverse order before the Appellate Authority under Section 107.
* Taxation of Barter Trade: The Court left this specific question open to be determined by the GST authorities during the adjudication/appellate proceedings.

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 (J&K GST Act): Section 2(103)
• Integrated Goods and Services Tax Act, 2017 (IGST Act): Section 8
• Jammu and Kashmir Value Added Taxes Act, 2005 (VAT Act): 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]