'PoK is part of India, so cross-LoC trade is intra-state': High Court settles GST confusion

The Jammu & Kashmir and Ladakh High Court has ruled that cross-Line of Control (LoC) trade conducted between traders in Jammu & Kashmir and Pakistan-Occupied Kashmir during 2017–2019 amounts to intra-state trade, holding that PoK is "part of territories of the State of Jammu & Kashmir." 

The court clarifies the GST treatment of the now-suspended barter-based LoC trade and rejects attempts by traders to classify it as zero-rated or outside the purview of the tax regime.

A division bench dismissed a batch of petitions challenging show-cause notices issued under the GST Act. "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," the court said.

"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 petitioners-traders who had engaged in barter exchanges with counterparts across the LoC-had argued that the transactions should attract no GST, contending that trade from Islamabad-Uri and from Rawalakot (PoK) to Chakkan-da-Bagh (Poonch) was conducted without any currency exchange and had been treated as zero-rated sales. They challenged the classification of supply, the territorial scope of the GST Act, and the validity of the show-cause notices.

Rejecting these challenges, the bench held that the GST Act clearly provides an alternative mechanism for aggrieved parties to raise disputes. "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," the judges said while dismissing the writ petitions.

The cross-LoC trade-opened in 2008 as a confidence-building measure between India and Pakistan-was suspended in April 2019 after security agencies flagged misuse. With the latest ruling, the tax liability on past barter transactions will now have to be resolved through the statutory appellate framework under GST.

(With inputs from PTI)