The Jammu and Kashmir and Ladakh High Court has said that cross trade between the Union Territory and Pakistan Occupied Kashmir along the Line of Control (LoC) falls within the ambit of internal trade and is bound by the GST Act.
Justices Sanjeev Kumar and Sanjay Parihar noted that the areas currently under de facto control of Pakistan are legally part of the former state of Jammu and Kashmir.
The court made this finding while hearing written submissions filed by traders who engaged in human trafficking across the Line of Control between 2017 and 2019, including barter and supply transactions.
In their plea, the appellants challenged the assessments issued by the tax authorities demanding GST. They challenged the territorial and supply classification on various grounds.
J&K HC dismisses plea
A two-judge bench of the Jammu and Kashmir and Ladakh High Court dismissed a number of pleas challenging show cause notices issued under the GST Act. Cross-LoC trade has now been banned after the 2019 Pulwama attack.
“Learned counsel appearing on both sides do not dispute that the area of the State which is currently under the de facto control of Pakistan is part of the territory of the State of Jammu and Kashmir. Thus, in the instant case, the location of the suppliers and the place of supply of the goods was in the then State of Jammu Kashmir (now a Union Territory) and therefore inter-state trade but inter-state trade was nothing that was affected in the petition other than the taxation period between the States.
The court also held that the appellants had prima facie suppressed material facts as they were aware of the fact that the government had not issued any specific notification under Section 11 of the CGST Act, 2017 exempting the cross-LoC barter.
“They were also aware that these supplies, whether inward or outward, were domestic supplies and liable to GST within the meaning of Section 7 of the CGST Act, 2017. It was the responsibility of the petitioners to self-assess and discharge their GST liability at the time of proper filing of GST returns,” the bench said.
Dismissing the batch of petitions, the court said, “In view of the availability of an equally effective remedy provided under the Act, we are not inclined to entertain these petitions and would rather refer the petitioners to the statutory remedies available under the CGST Act, 2017.
Counsel for the petitioners submitted that trade from Islamabad-Uri and from Rawalakot (PoK) to Chakkan-da-Bagh (Poonch) as mutually agreed upon by India and Pakistan was barter trade and no exchange of currency took place.
The petitioners argued that they treated the cross-checking business as a zero-rated sale that is not subject to any sales tax.
