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

1. Outcome

The writ petitions were dismissed.

• Petitions challenging only the Show Cause Notices (SCNs) were dismissed as premature.
• Petitions challenging final demand orders were dismissed on the grounds of availability of an equally efficacious alternative statutory remedy (appeal under Section 107 of the CGST Act).

The Court issued the following directions:
1. Petitioners who have not yet replied to the SCNs must do so within four weeks. The Proper Officer must conclude the proceedings within three months thereafter.
2. Petitioners against whom final orders 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 validity and jurisdiction of Show Cause Notices issued under Section 74(1) of the CGST Act, 2017, for demanding GST on cross-Line of Control (LoC) barter trade conducted during the financial years 2017-18 and 2018-19.

The key legal questions adjudicated were:
* Whether cross-LoC trade is an "intra-state supply" subject to GST.
* Whether invoking Section 74 (for fraud/suppression) was justified, or if the case should fall under Section 73 (non-fraudulent).
* Whether the SCNs were barred by the limitation period prescribed under the Act.
* Whether "bunching" two financial years into a single composite SCN is legally permissible.

3. Key Facts

• Background: The petitioners were traders engaged in the cross-LoC barter trade between J&K and Pakistan Occupied Kashmir (PoK), which was initiated in 2008 as a Confidence Building Measure and 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 taxed.
• Post-GST Implementation: After the GST regime was implemented on July 8, 2017, no specific exemption was provided for this trade. The petitioners continued the trade without paying GST, nor did they declare these transactions in their GST returns for FY 2017-18 and 2018-19.
• Departmental Action: Based on an investigation, the GST authorities found that the petitioners had made significant outward and inward supplies without paying GST. Consequently, they issued composite SCNs under Section 74(1) of the CGST Act, alleging wilful suppression of facts to evade tax.
• Litigation: The petitioners challenged the SCNs (and in some cases, the subsequent demand orders) directly before the High Court via writ petitions, primarily on the ground that the notices were without jurisdiction.

4. Arguments

Petitioners' Arguments:
* The SCNs are without jurisdiction as cross-LoC trade is not an intra-state supply. (This point was later conceded by the Senior Counsel).
* The notices are barred by limitation. The extended period of limitation under Section 74 is inapplicable as there was no fraud, wilful misstatement, or suppression of facts. The matter should be governed by the shorter time limit under Section 73.
* Issuing a single "bunched" SCN for two different financial years is impermissible under the GST Act.
* In a barter trade system, levying GST on both inward and outward supplies results in double taxation, as goods are exchanged for goods of equivalent value, not currency.

Respondents' (GST Department) Arguments:
* Cross-LoC trade is an intra-state supply because PoK is constitutionally part of the territory of India (and the then State of J&K), making both the supplier and the place of supply within the same state.
* There is no notification exempting this trade from GST.
* Section 74 was correctly invoked due to wilful and deliberate suppression of taxable supplies in GST returns, which constitutes an intent to evade tax.
* The SCNs were issued well within the five-year limitation period prescribed under Section 74(10).
* The writ petitions are not maintainable due to the availability of an effective statutory remedy of filing a reply to the SCN and, if aggrieved by the order, filing an appeal under Section 107.

5. Court’s Reasoning

The Court analyzed the issues systematically:

• Nature of Trade: The Court held the cross-LoC trade to be an intra-state supply. It reasoned that "India" under the CGST Act refers to the territory defined in Article 1 of the Constitution, which includes the entire state of Jammu & Kashmir. Since both the supplier and the place of supply are within the same state, the transaction qualifies as an intra-state supply under Section 8 of the IGST Act.
• Applicability of Section 74 (Suppression): The Court found that the SCNs made a prima facie case for suppression of facts. The petitioners had a statutory duty under the self-assessment regime to declare all transactions. Their failure to do so, coupled with non-cooperation during the investigation, was sufficient to prima facie invoke Section 74.
• Limitation: The Court concluded the SCNs were not barred by limitation. The time limit for issuing an order under Section 74 is five years from the due date of the annual return. For FY 2017-18 and 2018-19, the due dates were extended to February 2020 and December 2020, respectively. The SCNs, issued in August 2024, were well within the prescribed timeline (at least six months before the expiry of the five-year period).
• Bunching of Notices: The Court found no legal bar on issuing a composite SCN for multiple financial years, provided it includes a year-wise quantification of demand, contains specific allegations, and is within the limitation period for each year. The impugned notices met these conditions.
• Alternative Remedy: As the Court found no fundamental jurisdictional error in the SCNs, it held that the petitioners must exhaust the statutory remedies available under the GST Act. It cited established legal principles that writ jurisdiction should not be exercised when an effective alternative remedy exists, except in cases of complete lack of jurisdiction, violation of natural justice, or challenge to the vires of an Act, none of which were established.
• Taxation of Barter Trade: The court left this question open to be decided by the adjudicating/appellate authorities on merits.

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 11 (Power to grant exemption)
  • Section 50 (Interest on delayed payment)
  • Section 73 (Determination of tax in non-fraud cases)
  • Section 74 (Determination of tax in fraud/suppression cases)
  • 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")
• Jammu and Kashmir Value Added Taxes Act, 2005:
  • Section 55 (Regarding zero-rated sales)

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 can be entertained 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.