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. Petitioners were directed to file replies to the SCNs within four weeks.
* Petitions challenging final adjudication orders were dismissed on the grounds of an available and equally efficacious alternative remedy. Petitioners were granted three months to file a statutory appeal under Section 107 of the CGST Act.
* The Court clarified that its observations on the merits are prima facie and shall not bind the adjudicating or appellate authorities, but the legal principles determined are binding.

2. Core Issue

The central legal questions before the High Court were:
1. Whether the cross-Line of Control (LoC) barter trade between Jammu & Kashmir and Pakistan-occupied Kashmir (PoK) constitutes an "intra-state supply" subject to GST.
2. Whether the Show Cause Notices issued under Section 74(1) of the CGST Act, 2017, were valid in terms of jurisdiction, limitation, and the invocation of provisions related to fraud and suppression of facts.
3. Whether a writ petition under Article 226 is maintainable when a statutory remedy of appeal is available under the CGST Act.

3. Key Facts

• In 2008, India and Pakistan initiated cross-LoC trade between J&K and PoK as a Confidence Building Measure. It was a barter trade system regulated by a Standard Operating Procedure (SOP).
• Under the pre-GST regime (J&K VAT Act, 2005), this trade was treated as a "zero-rated sale" and was not taxed.
• After the implementation of GST from July 8, 2017, no specific exemption akin to the VAT Act provision was provided for this trade.
• The petitioners, who were engaged in this trade, did not pay GST on their inward or outward supplies for the financial years 2017-18 and 2018-19, nor did they declare these transactions in their returns.
• The GST authorities, upon investigation, found that the petitioners had not paid GST on these supplies.
• Consequently, the authorities issued Show Cause Notices under Section 74(1) of the CGST Act, alleging non-payment of tax by reason of willful suppression of facts. In some cases, adjudication orders confirming the tax demand were also passed.
• The petitioners challenged these SCNs and orders directly before the High Court via writ petitions.

4. Arguments

• Petitioners' Arguments:

  • The SCNs issued under Section 74 were barred by limitation.
  • The case does not involve fraud or willful suppression of facts and should have been initiated under Section 73, which has a shorter limitation period.
  • Issuing a single composite ("bunched") SCN for two different financial years (2017-18 and 2018-19) is not permissible under the GST Act.
  • Initially, it was argued that the trade was not an intra-state supply, but this point was later conceded during arguments.

• Respondents' (GST Department) Arguments:

  • The cross-LoC trade is an intra-state supply and is taxable under GST, as no exemption notification exists.
  • Section 74 was correctly invoked because the petitioners willfully suppressed taxable supplies in their GST 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 writ petitions should be dismissed as the petitioners have an effective statutory remedy of appeal under Section 107 of the CGST Act.

5. Court’s Reasoning

The Court analyzed the issues systematically and reasoned as follows:
* Nature of Trade: The Court held that the cross-LoC trade is unequivocally an "intra-state supply." It relied on the definitions of "India" (Section 2(56) CGST Act), "intra-State supply" (Section 8 IGST Act), and Article 1 of the Constitution, concluding that PoK is part of the territory of J&K and thus, India. Therefore, supplies between J&K and PoK are within the same state.
* Applicability of Section 74: The Court found that the SCNs made out a prima facie case for suppression of facts. The allegations that petitioners deliberately did not disclose transactions, failed to self-assess tax, and did not cooperate with the investigation were sufficient to trigger proceedings under Section 74.
* Limitation Period: The Court rejected the petitioners' argument that the SCNs were time-barred. It noted that the 5-year period for passing an order under Section 74 runs from the due date of the annual return. As the due dates for FY 2017-18 and 2018-19 were extended, the SCNs issued in August 2024 were well within the prescribed time limit.
* Bunching of Notices: The Court found no prohibition in the GST law against issuing a composite SCN for multiple financial years, provided there is a clear, year-wise quantification of demand, specific allegations, and each period is within limitation. The SCNs in question met these criteria.
* Alternative Remedy: The Court concluded that since the SCNs were not found to be wholly without jurisdiction, the established exceptions to the rule of alternative remedy did not apply. It held that the writ petitions were not entertainable and relegated the petitioners to the statutory mechanisms provided under the CGST Act (i.e., replying to the SCN or filing an appeal against the final order).

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 of tax
  • Section 73: Determination of tax in non-fraud cases
  • Section 74: Determination of tax in cases of fraud, willful misstatement, or suppression of facts
  • 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

7. Precedents Cited

• Whirlpool Corporation vs. Registrar of Trade Marks [1998 (8) SCC 1]: On the exceptions to the rule of alternative remedy, allowing writ petitions 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]: Reaffirming the principles laid down in Whirlpool regarding the High Court's discretion to entertain writ petitions in the face of an alternative statutory remedy.