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

1. Outcome

The writ petitions were dismissed. The Court found no merit in the challenge to the Show Cause Notices (SCNs) on jurisdictional grounds. The petitioners were directed to avail the statutory remedies available under the CGST Act, 2017.

Specific directions issued:
* Petitioners who have only received SCNs must file their replies within four weeks. The proper officer must conclude the proceedings within three months thereafter.
* Petitioners against whom final orders confirming demand have been passed are granted three months to file a statutory appeal under Section 107 of the CGST Act.

2. Core Issue

The central issue was the legality 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 by the petitioners for the financial years 2017-18 and 2018-19. The petitioners challenged the notices on grounds of jurisdiction, limitation, and misapplication of statutory provisions.

3. Key Facts

• Background: In 2008, India and Pakistan initiated cross-LoC trade between parts of Jammu & Kashmir as a Confidence Building Measure. This was a barter trade (no currency exchange) governed by a Standard Operating Procedure (SOP).
• Pre-GST Era: Under the J&K VAT Act, 2005, this cross-LoC trade was treated as a "zero-rated sale" and was exempt from tax.
• GST Implementation: With the rollout of the CGST Act and J&K GST Act in July 2017, there was no specific provision or notification exempting this trade from GST.
• Petitioners' Actions: The petitioners continued the trade without paying GST, believing it to be exempt, and did not declare these transactions in their GST returns for FY 2017-18 and 2018-19.
• Department's Action: Based on an investigation, the GST authorities found that the petitioners had made substantial outward and inward supplies without paying GST. Consequently, they issued composite Show Cause Notices under Section 74(1) of the CGST Act, alleging tax evasion through wilful suppression of facts.

4. Arguments

Petitioner's Arguments (M/s New Gee Enn & Sons & Ors.):
1. Jurisdiction: The SCNs were without jurisdiction as they were barred by the limitation period prescribed under Section 74.
2. Applicability of Section 74: The non-payment of tax was not due to fraud, wilful misstatement, or suppression. It was a bona fide belief based on the past practice under the VAT regime. Therefore, proceedings, if any, should have been initiated under Section 73, which has a shorter limitation period.
3. Bunching of Notices: Issuing a single composite SCN for two different financial years (2017-18 and 2018-19) is not permissible under the GST Act.
4. Nature of Trade: Initially argued that the trade was not an intra-state supply, but this point was later conceded by the Senior Counsel.
5. Barter System: It was argued that taxing both inward and outward supplies in a barter system where goods are exchanged for goods of equal value would be inequitable.

Respondent's Arguments (Union of India & Ors.):
1. Taxability: 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). Since no exemption was notified under GST, the supplies are taxable.
2. Suppression of Facts: The petitioners deliberately and wilfully suppressed their taxable supplies in their GST returns to evade tax, correctly attracting the stringent provisions of Section 74.
3. Limitation: The SCNs were issued 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 filing a reply to the SCN and, if aggrieved by a final order, filing an appeal under Section 107. The writ petitions should be dismissed on this ground alone.

5. Court’s Reasoning

The Court framed six questions and answered them as follows:

1. Nature of LoC Trade: The Court held that the trade is intra-state supply. It reasoned that "India" under the CGST Act includes the entire territory of the state of J&K as per the Constitution. Since both the supplier and the place of supply are within the same state (J&K), it qualifies as an intra-state supply taxable under the CGST and J&K GST Acts.

2. Applicability of Section 74: The Court found that the SCNs prima facie established grounds for invoking Section 74. The allegations of non-cooperation with the investigation, failure to self-assess tax liability, and non-declaration of transactions in returns constituted sufficient grounds to allege "suppression of facts."

3. Limitation: The SCNs were held to be within the time limit. The Court noted the extended due dates for filing annual returns were 5th February 2020 (for FY 2017-18) and 31st December 2020 (for FY 2018-19). The five-year period for passing an order under Section 74(10) would expire on 5th February 2025 and 31st December 2025, respectively. The SCNs, issued on 4th August 2024, were served well before the deadline (at least six months prior to the expiry of the five-year period).

4. Bunching of Notices: The Court ruled that issuing a composite SCN for multiple financial years is permissible, provided it contains a year-wise quantification of demand, specific allegations, and each period is within limitation. The Court found the impugned SCNs met these criteria and caused no prejudice to the petitioners.

5. Taxation of Barter Trade: The Court left this question open to be determined on merits by the adjudicating or appellate authorities under the GST Act.

6. Alternative Remedy: As the Court found the SCNs were not without jurisdiction, it held that the petitioners must exhaust the statutory remedies available under the Act. The existence of an equally efficacious remedy (replying to the SCN and/or appeal under Section 107) bars the entertainability of a writ petition.

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 11 (Power to grant exemption from tax)
  • Section 73 (Determination of tax for reasons other than fraud)
  • Section 74 (Determination of tax by reason of fraud, wilful-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 zero-rated sale for cross-LoC trade)
• Constitution of India:
  • Article 1 (Name and territory of the Union)
  • Article 226 (Power of High Courts to issue certain writs)

7. Precedents Cited

• 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 are maintainable where there is a violation of fundamental rights, principles of natural justice, or the proceedings are wholly without jurisdiction.
• M/s. Radha Krishan Industries vs. State of Himachal Pradesh and Ors. AIR 2021 Supreme Court 2114: Cited to reaffirm the principles governing the exercise of writ jurisdiction under Article 226, especially in the context of available statutory remedies.