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.
* For petitioners challenging only the Show Cause Notice (SCN): The petitions were dismissed as premature. They were directed to file a reply to the SCN within four weeks. The proper officer must conclude the proceedings within three months thereafter.
* For petitioners challenging a final demand order: The petitions were dismissed on the ground of an available, equally efficacious statutory remedy. They were granted three months to file an appeal under Section 107 of the CGST Act.
* The Court clarified that its observations on the merits are prima facie and should not bind the adjudicating/appellate authorities, but the legal principles determined are binding.

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 for the financial years 2017-18 and 2018-19. The petitioners challenged the notices on grounds of lack of jurisdiction, limitation, and incorrect application of statutory provisions.

3. Key Facts

• Background: In 2008, as a Confidence Building Measure, India and Pakistan permitted cross-LoC trade between parts of Jammu & Kashmir along specific routes. The trade was a barter system (goods for goods, no currency exchange) and was regulated by a Standard Operating Procedure (SOP).
• Pre-GST Regime: Under the J&K Value Added Tax (VAT) Act, 2005, this cross-LoC trade was explicitly treated as a "zero-rated sale" and was not taxed.
• GST Implementation (July 2017): With the rollout of the CGST and J&K GST Acts, no specific provision or notification was issued to continue the zero-rated status for this trade.
• Dispute Period (2017-19): The petitioners continued the trade without declaring these transactions in their GST returns or paying GST, presumably under the impression that its tax-exempt status continued.
• Department Action: Based on an investigation, the GST authorities found that the petitioners had made outward and inward supplies without paying GST. Consequently, they issued Show Cause Notices under Section 74(1), alleging willful suppression of facts to evade tax.
• Litigation: Instead of replying to the notices, the petitioners filed writ petitions challenging their legality and jurisdiction.

4. Arguments

• Petitioners' Arguments:

  1. Jurisdiction: The cross-LoC trade is an international trade, not an intra-state supply, and thus not amenable to CGST/J&K GST. (This point was later conceded by the Senior Counsel).
  2. Limitation: The SCNs issued under Section 74 are barred by the limitation period.
  3. Incorrect Section Invoked: The non-payment was not due to fraud or willful suppression of facts. Therefore, Section 74 is inapplicable. At most, Section 73 could be invoked, which has a shorter limitation period.
  4. Improper Bunching: Issuing a single composite SCN for two different financial years (2017-18 and 2018-19) is not permissible under the GST Acts.
  5. Barter Trade Taxation: In a barter system, taxing both outward and inward supplies would amount to double taxation.

• Respondents' (GST Department) Arguments:

  1. Taxable Supply: The cross-LoC trade is an intra-state supply within the territory of India (as defined in the Constitution) and is taxable under GST, as no exemption has been granted.
  2. Justification for Section 74: The petitioners willfully suppressed taxable supplies in their returns with an intent to evade tax, justifying the invocation of Section 74.
  3. Within Limitation: The SCNs were issued well within the five-year limitation period prescribed under Section 74.
  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 the final 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 trade is intra-state. Citing the definitions of "India" in the CGST Act and Article 1 of the Constitution, the Court held that since Pakistan-occupied Kashmir (PoK) is part of the territory of the State of J&K, trade between the two parts constitutes a supply where the supplier and place of supply are in the same state.
• Applicability of Section 74: The SCN is prima facie valid under Section 74. The Court noted that the notice specifically alleges willful suppression, non-cooperation with the investigation, and a deliberate failure to self-assess and pay tax, which are the requisite elements for invoking Section 74. The final determination on this was left to the adjudicating authority.
• Limitation: The SCNs are not time-barred. The court calculated the five-year period for passing an order under Section 74(10) from the extended due dates for filing annual returns for FY 2017-18 and 2018-19. The notices were found to be issued well within the prescribed timeline (i.e., at least six months prior to the expiry of the five-year period).
• Bunched Notices: Issuing a composite SCN for multiple tax periods is permissible. The Court found no statutory bar, provided the notice contains a year-wise breakup of tax liability, specific allegations, and each period is within limitation, thereby complying with the principles of natural justice.
• Barter Trade Taxation: The Court explicitly left this question open, stating that it should be determined by the GST authorities during adjudication.
• Maintainability of Writ Petition: Since the petitioners' primary challenge regarding jurisdiction and limitation failed, the Court held that there was no exceptional ground to bypass the statutory remedies. The Court exercised its discretion to relegate the petitioners to the alternative remedies provided under the CGST Act.

6. Statutory References

• Constitution of India: Article 1, Article 226
• Central Goods and Services Tax (CGST) Act, 2017: Sections 2(56), 2(64), 7, 11, 50, 73, 74, and 107.
• J&K Goods and Services (J&K GST) Act, 2017: Section 2(103).
• Integrated Goods and Services Tax (IGST) Act, 2017: Section 8.
• J&K Value Added Tax (VAT) Act, 2005: Section 55.

7. Precedents Cited

• Whirlpool Corporation vs. Registrar of Trade Marks [1998 (8) SCC 1]
• M/s. Radha Krishan Industries vs. State of Himachal Pradesh and Ors [AIR 2021 Supreme Court 2114]