J&K High Court Holds Cross-LoC Trade To Be Intra-State Under GST Law

The High Court of Jammu & Kashmir and Ladakh has ruled that trade carried out across the Line of Control (LoC) between traders in the Union territory and those in Pakistan-Occupied Kashmir (PoK) falls within the ambit of intra-state commerce for the purposes of the GST regime. The Court underscored that PoK continues to be regarded, in law, as part of the territory of the former State of Jammu & Kashmir.

The decision came while the bench was dealing with a series of petitions filed by traders who had engaged in barter-based exchanges with counterparts across the LoC between 2017 and 2019. These traders had approached the Court to challenge show-cause notices issued by the tax department seeking GST on such transactions. The petitioners questioned the classification of both the territorial jurisdiction and the nature of supply invoked by the authorities.

A division bench of Justice Sanjeev Kumar and Justice Sanjay Parihar ultimately declined to interfere with the proceedings initiated by the department, dismissing the group of petitions. Reiterating the legal position regarding the territorial status of PoK, the Court observed: "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."

Finding that the traders had an adequate statutory mechanism available to contest the show-cause notices, the bench declined to exercise its writ jurisdiction. As the Court stated that “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 petitioners’ counsel argued that the exchanges conducted along the two agreed routes, Islamabad to Uri, and from Rawalakot (PoK) to Chakkan-da-Bagh in Poonch, were strictly barter arrangements, with no cash transactions involved. On this basis, the traders had treated cross-LoC movement of goods as zero-rated supplies not liable to sales tax.

With the petitions dismissed, the traders must now pursue remedies available under the GST framework to contest the demands raised against them.

With PTI inputs