Cross-LoC Barter Trade Constitutes Intra-State Supply Under GST Law: J&K&L HC Rules Transaction Taxable [Read Order]

The Jammu & Kashmir and Ladakh High Court (HC) has ruled that the Cross-LoC (Line of Control) barter trade between the two parts of the erstwhile State of Jammu and Kashmir constitutes an intra-state supply of goods under the Central Goods and Services Tax Act, 2017 (CGST Act).

A batch of writ petitions, led by the case of M/s New Gee Enn & Sons challenged show cause notices issued by the Superintendent, CGST and CX Range-I, Srinagar, under Section 74(1) of the CGST Act, 2017.

The petitioners, who were traders engaged in the cross-LoC barter trade, contested the tax demand primarily on the ground that this trade was not an intra-state trade and was, therefore, not subject to the provisions of the GST Acts.

The core issue (Question No. 1) framed by the High Court was: "Whether the cross-LoC trade regulated by SOP issued by Ministry of Home Affairs... dated 20th of October 2008 is not an intra-state trade between India and Pakistan and therefore not amenable to the provisions of CGST Act of 2010/JK GST Act of 2017?".

The Division bench comprising Justice Sanjeev Kumar and Justice Sanjay Parihar noted that the cross-LoC trade was a Confidence Building Measure (CBM) agreed upon by India and Pakistan and was regulated by a Standard Operating Procedure (SOP) issued by the Ministry of Home Affairs, Government of India, in October 2008.

The court observed that the trade commenced on the Srinagar-Muzaffarabad and Poonch-Rawalakote routes and was essentially a barter trade with no exchange of currency.

The court observed that the trade was between the people living across the LoC, meaning it was a trade between the then 'State of Jammu and Kashmir' and 'Pak occupied Kashmir'.

The High Court referred to the definitions under the GST Acts defined in Section 2(64) of the CGST Act, 2017, as having the same meaning as Section 8 of the Integrated Goods and Services Tax Act, 2017 (IGST Act).

The court observed that the supply of goods is treated as intra-State supply where the location of the supplier and the place of supply of goods are in the same State or same Union territory.

The Court observed that Section 2(56) of the CGST Act, 2017, defines "India" as the territory of India as referred to in Article 1 of the Constitution. It also observed that Section 2(103) of the J&K GST Act of 2017 defined "State" as the State of Jammu and Kashmir.

The Court observed that the area of the State currently under the de-facto control of Pakistan is part of the territories of the State of Jammu & Kashmir. The Court concluded that the location of the suppliers (petitioners) and the place of supply of goods (PoK) were within the then State of Jammu and Kashmir (now Union Territory).

Therefore, the court held that the cross-LoC trade affected by the petitioners was nothing but an intra-state trade. The supplies were intra-state and subject to GST, especially since there was no specific notification issued to exempt the cross-LoC barter trade from GST payment under Section 11 of the CGST Act of 2017. The batch of writ petitions were dismissed.

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