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

1. Outcome

The writ petitions were dismissed. The Court directed the petitioners to avail the statutory remedies available under the Central Goods and Services Tax Act, 2017 (CGST Act).

• For petitioners who have only received a Show Cause Notice (SCN), they are directed to file a reply within four weeks. The proper officer must then conclude the proceedings within three months.
• For petitioners against whom a final demand order has been passed, they 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 of the case should not influence the quasi-judicial authorities, who must adjudicate the matter independently.

2. Core Issue

The central issue was whether the Show Cause Notices issued under Section 74(1) of the CGST Act, seeking to levy GST on cross-Line of Control (LoC) barter trade for the financial years 2017-18 and 2018-19, were valid and issued with jurisdiction. The petitioners challenged the notices on grounds of limitation, applicability of the correct statutory provision (Section 73 vs. Section 74), and permissibility of clubbing multiple financial years in a single notice.

3. Key Facts

• The petitioners were engaged in cross-LoC trade between Jammu & Kashmir and Pakistan-occupied Kashmir (PoK) under a Standard Operating Procedure (SOP) issued by the Government of India in 2008.
• This trade was a barter system (goods for goods) with no currency exchange.
• Under the previous J&K VAT Act, 2005, this trade was treated as a "zero-rated sale" and was not taxed.
• After the implementation of GST in July 2017, there was no specific provision or notification exempting this trade from GST.
• The petitioners did not declare these transactions in their GST returns for FY 2017-18 and 2018-19, nor did they pay GST.
• Following an investigation, the GST authorities issued SCNs under Section 74(1) of the CGST Act, alleging tax evasion through wilful suppression of facts.
• The petitioners challenged the SCNs (and in some cases, the subsequent demand orders) directly before the High Court, claiming they were issued without jurisdiction.

4. Arguments

Petitioners' Arguments:
1. Jurisdiction: Initially pleaded that cross-LoC trade was between two countries and not subject to CGST, but later conceded it was an intra-state trade.
2. Limitation: The SCNs issued under Section 74 were time-barred.
3. Applicability of Section 74: The non-payment was not due to fraud, wilful misstatement, or suppression. At best, it was a case of bona fide belief based on the previous tax regime, so proceedings should have been initiated under Section 73, which has a shorter limitation period.
4. Bunched Notices: Issuing a single composite SCN for two different financial years (2017-18 and 2018-19) is not permissible under the GST law.
5. Barter Trade: In a barter system, taxing both the outward supply and the inward supply (as a receipt of consideration) would amount to double taxation.

Respondents' Arguments (GST Department):
1. Taxable Supply: Cross-LoC trade is an intra-state supply and is taxable under the CGST/SGST Acts as no exemption has been granted.
2. Suppression of Facts: The petitioners wilfully and deliberately suppressed their taxable supplies in their GST returns to evade tax, justifying the invocation of the extended period of limitation under Section 74.
3. Within Limitation: The SCNs were issued well within the time limit prescribed under Section 74(10), read with Section 74(2), considering the extended due dates for filing annual returns for the relevant years.
4. Alternative Remedy: The petitioners have an effective statutory remedy of replying to the SCN or filing an appeal under Section 107 against any adverse order, and thus the writ petition is not maintainable.

5. Court’s Reasoning

1. Nature of LoC Trade: The Court held that the trade was intra-state, as the location of the supplier and the place of supply were both within the territory of the erstwhile State of Jammu & Kashmir, which, as per the Constitution of India, includes PoK.
2. Applicability of Section 74: The Court found a prima facie case of suppression of facts. The SCNs detailed that the petitioners, despite being under a self-assessment regime, did not disclose the transactions, cooperate with the investigation, or supply requisite information. This justified invoking Section 74, which deals with tax evasion due to fraud or suppression.
3. Limitation: The Court concluded that the SCNs were not time-barred. It noted the extended due dates for filing annual returns for FY 2017-18 (5th Feb 2020) and FY 2018-19 (31st Dec 2020). The SCNs issued in August 2024 were well within the five-year period allowed for passing an order under Section 74(10), and were issued at least six months prior to its expiry, as required.
4. Bunched Notices: The Court found no prohibition in the GST Acts against issuing a composite SCN for multiple years, provided it contains a year-wise breakup of demand, specific allegations, and each period is within limitation. The Court found the SCNs in question met these criteria.
5. Alternative Remedy: As the Court did not find the SCNs to be without jurisdiction, it held that the petitioners must exhaust the statutory remedies. It cited established legal principles that writ jurisdiction should not ordinarily be exercised when an effective alternative remedy is available, except in specific cases like violation of natural justice or lack of jurisdiction, which were not established here.
6. Barter Trade Taxability: The Court explicitly left this question open to be determined by the statutory authorities.

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 50 (Interest on delayed payment)
  • Section 73 (Determination of tax for reasons other than fraud)
  • Section 74 (Determination of tax by reason of fraud or suppression)
  • 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 Tax Act, 2005:
  • Section 55 (Mentioned for historical context of zero-rating)

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 there is a violation of fundamental rights, principles of 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]: Reaffirmed the principles laid down in Whirlpool and outlined the settled law on the exercise of writ jurisdiction in the face of an alternative statutory remedy.