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

Judgment Summary

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 final adjudication orders were dismissed, with the Court relegating the petitioners to the statutory remedy of appeal.

The Court directed that:
* Petitioners who have not yet replied to the SCNs must do so within four weeks. The Proper Officer must then conclude the proceedings within three months of receiving the reply.
* Petitioners against whom final orders have been passed have three months to file a statutory appeal under Section 107 of the CGST Act, 2017.

2. Core Issue

The central issue was the validity and jurisdiction 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 during the financial years 2017-18 and 2018-19.

The key legal questions addressed by the Court were:
* Whether cross-LoC trade is an "intra-state supply" subject to GST.
* Whether the invocation of Section 74 (for fraud, willful misstatement, or suppression) was justified, or if Section 73 (for other reasons) should apply.
* Whether the SCNs were barred by the limitation period prescribed under Section 74.
* Whether issuing a single "bunched" SCN for two different financial years is legally permissible.
* Whether a writ petition is entertainable when a statutory alternative remedy is available.

3. Key Facts
* Background: Since 2008, the Governments of India and Pakistan permitted cross-LoC barter trade as a Confidence Building Measure, regulated by a Standard Operating Procedure (SOP).
* Pre-GST Regime: 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, there was no specific provision continuing this exemption.
* Non-payment of Tax: The petitioners, 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.
* Departmental Action: Based on an investigation, the GST authorities found non-payment of tax on both outward supplies to Pakistan-occupied Kashmir (PoK) and inward supplies from PoK. Consequently, they issued SCNs under Section 74(1) of the CGST Act, alleging suppression of facts with intent to evade tax.
* Challenge: The petitioners challenged these SCNs (and subsequent orders in some cases) directly before the High Court via writ petitions, claiming they were issued without jurisdiction.

4. Arguments

Petitioner's Arguments:
1. Jurisdiction: The cross-LoC trade is an inter-country trade, not an intra-state supply, and thus not amenable to the CGST Act. (This point was later conceded during arguments).
2. Limitation: The SCNs issued under Section 74 are time-barred.
3. Nature of Offence: The non-payment, if any, was not due to fraud or suppression but due to a bona fide belief that the trade was exempt, as under the previous VAT regime. Therefore, the case should fall under Section 73 (which has a shorter limitation period), not Section 74.
4. Impermissible Bunching: A single composite SCN for two different financial years (2017-18 and 2018-19) is not permissible under the GST framework.
5. Barter Trade: In a barter system with no currency exchange, taxing both inward and outward supplies would amount to double taxation.

Respondent's (Tax Department's) Arguments:
1. Taxability: The trade is an intra-state supply, as PoK is constitutionally part of the territory of India and the then State of J&K. Since no specific exemption exists under GST, the supplies are taxable.
2. Justification for Section 74: Section 74 was correctly invoked because the petitioners deliberately and willfully suppressed their taxable supplies in their GST returns to evade tax. This evasion would not have been unearthed without a departmental investigation.
3. Within Limitation: The SCNs are well within the five-year limitation period prescribed under Section 74(10), as the due dates for filing annual returns for the relevant years were extended.
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 an order, filing an appeal under Section 107 of the CGST Act.

5. Court’s Reasoning

The Court analyzed the issues systematically:
* Nature of LoC Trade: The Court held that as per Article 1 of the Constitution and the definition of "India" and "State" under the GST Acts, PoK is part of the territory of India. Therefore, a trade where the supplier and place of supply are both within the erstwhile State of J&K is unequivocally an "intra-state supply" under Section 8 of the IGST Act, 2017.
* Applicability of Section 74: The Court found that the SCNs made a prima facie case for suppression of facts. The notices alleged that petitioners were aware of the lack of an exemption under GST, failed to self-assess and declare transactions, and did not cooperate with the investigation. This was sufficient to justify the invocation of Section 74 at the SCN stage, leaving the final determination to the adjudicating authority.
* Limitation Period: The Court calculated the timelines based on the extended due dates for filing annual returns for FY 2017-18 (extended to Feb 2020) and FY 2018-19 (extended to Dec 2020). The SCNs, issued in August 2024, were well within the five-year period for passing an order and were issued more than six months prior to its expiry, thus complying with Section 74(2) and 74(10).
* Bunching of SCNs: The Court found no statutory bar on issuing a composite SCN for multiple financial years, provided it meets key criteria: a clear, year-wise quantification of demand; specific allegations for each period; and each period being within its limitation. The Court held that the impugned notices satisfied these conditions and caused no prejudice to the petitioners.
* Alternative Remedy: As the Court found no fundamental jurisdictional error in the SCNs, it held that the rule of alternative remedy must be applied. It relied on established precedents to conclude that writ jurisdiction should not be exercised when an equally efficacious statutory remedy (replying to the SCN and appeal) is available. The petitions were therefore not entertainable.
* Taxation of Barter Trade: The Court explicitly left this question open, to be determined on merits by the GST authorities.

6. Statutory References

• 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 of tax
  • Section 73: Determination of tax in non-fraud cases
  • Section 74: Determination of tax in cases of fraud, willful misstatement, or suppression
  • Section 107: Appeals to Appellate Authority
• Integrated Goods and Services Tax Act, 2017 (IGST Act):
  • Section 8: Intra-State supply
• Jammu and Kashmir Value Added Taxes Act, 2005 (VAT Act):
  • Section 55: Provision for treating cross-LoC trade as zero-rated sale (prior to GST)
• Constitution of India:
  • Article 1: Name and territory of the Union
  • Article 226: Power of High Courts to issue certain writs

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 if there is a violation of fundamental rights, principles of natural justice, or where 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 laid down in Whirlpool and clarify that when a statute creates a right and also prescribes a remedy, that statutory remedy should typically be exhausted before invoking writ jurisdiction.