J&K High Court Rules Cross-LoC Trade with PoK as Intra-State under GST Act: Legal Implications for Traders

The division bench comprised of Justice Sanjeev Kumar and Justice Sanjay Parihar delivered a significant ruling on cross-LoC trade classification.

Jammu and Kashmir and Ladakh High Court has determined that trade across the Line of Control between the Union territory and Pakistan-Occupied Kashmir falls under intra-state trade as defined by the GST Act. The court based this decision on the legal status of PoK as an integral part of the former state of Jammu and Kashmir.

The case involved writ petitions from traders who had conducted barter and supply transactions with entities across the LoC during the period of 2017-2019. These traders challenged the show-cause notices issued by tax authorities that demanded GST payment, contesting both the territorial classification and supply categorization on multiple grounds.

The division bench consisting of Justice Sanjeev Kumar and Justice Sanjay Parihar rejected the batch of petitions that disputed the show-cause notices issued under the GST Act related to the now-prohibited cross-LoC trade activities.

In their ruling, the judges noted: "It is not disputed by learned counsel appearing on either side that the area of the State presently under de-facto control of Pakistan is part of territories of the State of Jammu & Kashmir. Therefore, in the instant case the location of the suppliers and the place of supply of goods were within the then State of Jammu Kashmir (now UT) and, therefore, the cross-LoC trade affected by the petitioners during the tax period in question was nothing but an intra-state trade."

The court further stated: "In the face of availability of equally efficacious remedy provided under the statute, we are not inclined to entertain these petitions and rather would relegate the petitioners to the statutory remedies available under the CGST Act of 2017," while dismissing the petitioners' plea.

The legal representatives for the petitioners argued that trade between Islamabad-Uri and from Rawalakot (PoK) to Chakkan-da-Bagh (Poonch), which was mutually agreed upon by India and Pakistan, operated as barter trade without any currency exchange.

The petitioners maintained their position that they had classified cross-LoC trade as zero-rated sales, which they believed should not attract any sales tax.