Jammu and Kashmir High Court Rules PoK Trade Exempt from GST: Reaffirming PoK as Integral Part of India

New Delhi:

The Jammu and Kashmir High Court has determined that trade activities between Jammu and Kashmir and Pakistan Occupied Kashmir (PoK) across the Line of Control constitute intra-state trade, thereby exempting such transactions from GST taxation.

Although cross-LoC trade has remained suspended since 2019 due to strained India-Pakistan relations, this ruling by the division bench reinforces the government's position that PoK is an integral component of Jammu and Kashmir and consequently part of India.

Despite the abrogation of Article 370, the J&K assembly continues to maintain 24 vacant seats specifically reserved for PoK. According to the former constitution of Jammu and Kashmir, the entirety of J&K including PoK is considered an integral part of India. The separate constitution of J&K was also abolished with the revocation of Article 370.

While examining petitions from cross-LoC traders, the High Court stated that trade between Jammu and Kashmir and PoK was intra-state in nature because PoK is part of Jammu and Kashmir.

"Therefore, the location of suppliers and the place of supply of goods were within the then State of Jammu Kashmir (now the Union Territory). The cross-LoC trade affected by the petitioners during the relevant tax period was nothing but intra-state trade," declared the division bench comprising Justice Sanjeev Kumar and Justice Sanjay Parihar.

The petitioners had contested show cause notices issued by the Superintendent CGST under the Central Goods and Services Tax Act, 2017. They maintained that when trade commenced in 2008, intra-state sales tax was governed by the Jammu and Kashmir Value Added Taxes Act, which provided exemption for cross-LoC trade from taxation.

However, following the implementation of the GST regime in 2017, authorities began investigating the petitioners regarding payment of GST on their outward and inward supplies, subsequently issuing show cause notices.

The petitioners challenged these notices, asserting that cross-LoC trade regulated by the Government of India's SOP issued on October 20, 2008, constitutes intra-state trade and is therefore exempt from CGST Act provisions. They further argued that even if considered intra-state trade, the tax demand would be invalid since transactions involved a barter system without monetary exchange.

In 2008, as relations improved between India and Pakistan through confidence-building measures, both governments agreed to allow cross-LoC trade under specific conditions.

However, on April 9, 2019, the Indian government suspended cross-LoC trade, citing misuse of trade routes for smuggling illegal weapons, narcotics, and counterfeit currency.

A statement from the Ministry of Home Affairs revealed that investigations by the National Investigation Agency had identified concerns that cross-LoC trade operations involved individuals with close associations to banned terrorist organizations.

The two most significant confidence-building measures between India and Pakistan were the cross-LoC bus service and cross-LoC trade.

On April 7, 2005, then Prime Minister Dr. Manmohan Singh inaugurated the first cross-LoC bus service, Karwaan-e-Aman or Peace Caravan, connecting Srinagar to Muzaffarabad.

Subsequently, on October 21, 2008, barter trade commenced across two routes: Salamabad (Uri) - Muzaffarabad and Poonch-Rawalakot, allowing traders on both sides of the LoC to exchange 21 mutually agreed items.