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The Jammu and Kashmir High Court has ruled that trade between the two parts of Kashmir divided by the Line of Control (LoC) would be considered intra-state trade, not import-export, as Pakistan Occupied Kashmir (POK) is part of India.
This court was hearing a bunch of petitions connected to the cross-LoC trade that began in 2008 as part India-Pak “confidence building measures”. After the February 14, 2019, Pulwama car bomb attack that killed 40 paramilitary personnel and brought India and Pakistan to the brink of war, India suspended the trade.
The petitioners challenged the showcause notices issued to them, under the Central Goods and Services Tax Act 2017, by the Superintendent, CGST, Srinagar for the inward and outward supplies in cross-LoC trade from 2017, when GST was implemented, till the suspension of trade in 2019.
The petitioners had challenged the notices in court on many counts, including that cross-LoC trade was import and export trade between two countries.
“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,” Justice Sanjeev Kumar and Justice Sanjay Parihar said in their judgment. “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 Union Territory) 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 said.
The court said it appreciated that the counsel for the petitioners, Faisal Qadri, conceded that the cross-LoC trade “between two parts of the State is clearly suggestive of the fact that the trade is intra-state and not a trade of import or export of goods between two countries”.
When the cross-LoC trade was started in 2008 between India and Pakistan through two designated points, Uri in Kashmir and Poonch in Jammu, the trade was governed by the Jammu and Kashmir Value Added Taxes 2005. The Act had made the trade a zero-tax trade and it was done on a barter basis with no exchange of currency. When GST was implemented in 2017, it didn’t provide a tax exemption to this trade. The petitioners, however, continued to treat cross-LoC trade as a zero-rated sale, did not indicate their cross-LoC transactions in their return or pay any sales tax on this account, thus attracting showcause notices from the implementing agency, which they have challenged.
The petitioners argued that cross-LoC trade was regulated by an SOP issued by the central government and this was not amenable to the provisions of the GST Act. They also argued that there was no willful misrepresentation or fraud from the petitioners.
The court, however, said there is prima facie suppression of material facts by the petitioners as they were well aware that there was no tax exemption in GST for cross-LoC barter.
“It was the responsibility of the petitioners to self-assess and discharge their GST liability at the time of filing GST returns properly,” the court said.
The court also said that the notices were issued to the petitioners “at least six months prior to the expiry of five years from the date due for furnishing the annual return for the financial years in question”.
Though the court dismissed the petitions, it has said that they have “equally efficacious alternative remedy under the statute” and has given four weeks to them to file responses to the showcause notices.
“Since we are dismissing the petitions either on the ground that these petitions are premature or that petitioners have equally efficacious alternative remedy under the statute,” the court said.
