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.

1. Outcome

The writ petitions were dismissed. The Court found no grounds to interfere with the Show Cause Notices (SCNs) or the subsequent demand orders, holding that they were not issued without jurisdiction.

The Court directed the following:
* For cases at the SCN stage: Petitioners must file their replies to the SCNs within four weeks. The Proper Officer must conclude the proceedings within three months thereafter.
* For cases where a final order is passed: Petitioners 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 adjudicating or appellate authorities, who must decide the cases independently.

2. Core Issue

The central issue was the taxability of cross-Line of Control (LoC) barter trade under the CGST/J&K GST Acts, 2017. Specifically, the Court examined the validity and jurisdiction of Show Cause Notices issued under Section 74(1) of the CGST Act, which alleged tax evasion through suppression of facts related to this trade.

3. Key Facts

• Background: Since 2008, a cross-LoC trade arrangement existed between the two parts of Jammu & Kashmir as a Confidence Building Measure. This was a barter trade, with no currency exchange, regulated 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 not subject to tax.
• GST Implementation: With the rollout of the CGST and J&K GST Acts in July 2017, no specific provision or notification exempted this trade.
• Petitioners' Actions: The petitioners continued the trade without paying GST or declaring these transactions in their returns for the financial years 2017-18 and 2018-19, assuming its zero-rated status continued.
• Department's Action: Based on an investigation, the GST authorities found that the petitioners had made significant inward and outward supplies without paying GST. Consequently, they issued SCNs under Section 74(1) of the CGST Act for non-payment of tax due to alleged suppression of facts.
• Challenge: The petitioners challenged these SCNs (and subsequent orders in some cases) directly in the High Court via writ petitions, claiming they were issued without jurisdiction.

4. Arguments

Petitioners' Arguments (Assessee):
1. Jurisdiction: The cross-LoC trade is not an intra-state supply and thus not taxable under the CGST Act.
2. Limitation: The SCNs issued under Section 74 are time-barred.
3. Wrongful Invocation of Section 74: There was no fraud, willful misstatement, or suppression of facts. The non-payment was due to a bona fide belief that the trade was zero-rated, as it was under the previous VAT regime. Therefore, proceedings, if any, should have been initiated under Section 73, which has a shorter limitation period.
4. Impermissible Bunching: A single composite SCN for two different financial years (2017-18 and 2018-19) is not permissible under the law.
5. Barter Trade Taxation: In a barter system, taxing both outward and inward supplies amounts to double taxation.

Respondents' Arguments (Revenue):
1. Taxability: The cross-LoC trade is an intra-state supply as both the supplier and the place of supply are within the territory of the then State of Jammu & Kashmir (as defined in the Constitution). No exemption has been granted under the GST regime.
2. Suppression of Facts: The petitioners willfully suppressed their taxable supplies by not declaring them in their GSTR-1 and GSTR-3B returns. This justifies the invocation of the extended period of limitation under Section 74.
3. Limitation: The SCNs are well within the five-year limitation period prescribed under Section 74(10), calculated from the extended due dates for filing annual returns for the respective financial years.
4. Alternative Remedy: The petitioners have an effective statutory remedy of appeal under Section 107 of the CGST Act, and therefore, the writ petitions should not be entertained.

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 supply. Citing the definitions of "India" and "State" under the Constitution and GST laws, the Court held that since the trade occurred between two parts of the erstwhile State of Jammu & Kashmir, the location of the supplier and the place of supply were in the same state.
2. Applicability of Section 74 vs. 73: The SCNs were prima facie validly issued under Section 74(1). The notice explicitly alleged that the petitioners, despite knowing there was no GST exemption, failed to self-assess and declare their supplies. This non-disclosure and non-cooperation during the investigation prima facie constitute "suppression of facts."
3. Limitation: The SCNs are not time-barred. The Court calculated the five-year period for issuing an order from the extended due dates for filing annual returns (5th Feb 2020 for FY 2017-18 and 31st Dec 2020 for FY 2018-19). The SCNs, issued in August 2024, were well within the statutory timeline of being issued at least six months before the expiry of the five-year limit.
4. Bunching of Notices: Issuing a composite SCN for multiple financial years is permissible. The Court found no prohibition in the GST Act, provided the notice gives a year-wise breakup of demand, contains specific allegations, and is within the limitation period for each year, which was the case here.
5. Taxation of Barter Trade: The Court left this question open for the adjudicating/appellate authorities to determine on merits.
6. Alternative Remedy: Since the SCNs were not found to be without jurisdiction, the writ petitions are not entertainable. The petitioners must exhaust the statutory remedies available under the GST Act, namely, replying to the SCN and/or filing an appeal against any adverse order.

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 11 (Power to grant exemption)
  • 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 reason of fraud/suppression)
  • Section 107 (Appeals to Appellate Authority)
• Integrated Goods and Services Tax (IGST) Act, 2017: Section 8.
• J&K Value Added Tax (VAT) Act, 2005: Section 55 (Provision for zero-rated sale).

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, such as violation of natural justice or proceedings being wholly without jurisdiction.
2. M/s. Radha Krishan Industries vs. State of Himachal Pradesh and Ors. (2021) AIR SC 2114: Cited to reaffirm the principles governing the High Court's discretion under Article 226, especially regarding the exhaustion of statutory remedies.