Introduction
The High Court of Jammu and Kashmir has held that cross-LoC trade which is conducted between the Indian side of Jammu Kashmir and Pakistan occupied Kashmir (PoK) must be treated as an intra-state trade under the GST regime. The Court reiterated that PoK is an integral part of Indian territory, hence rejecting the contentions that such barter-based trade should be considered international or zero rated.
Background
Cross LoC trade was introduced in 2008 as a confidence-building measure between India and Pakistan. Goods moved between designated points in Uri and Poonch on a barter system. After the implementation of GST in 2017, traders engaged in this trade continued transactions without reporting them as taxable supplies, claiming that PoK laid outside India’s taxable jurisdiction. The trade was after that suspended in 2019 due to the security concerns, leaving unresolved GST liabilities and pending the show cause notices from the tax authorities.
Key Points
The Court held that PoK despite remains under the de-facto control of Pakistan, legally and constitutionally forms part of the erstwhile State of Jammu & Kashmir and by extension is a part of Indian territory.
Cross-LoC trade therefore constitutes intra-state supply under the CGST Act as both supplier and place of supply are within the territory of the former State of Jammu and Kashmir.
The Court rejected the trader’s claim that cross-LoC barter transaction was zero-rated or are exempted from tax.
The bench affirmed that traders had an obligation to self-assess and discharge GST liability, since no statutory exemption existed for such trade.
Petitions challenging GST show-cause notices were dismissed, and traders were directed to avail statutory remedies under the CGST Act.
Recent Developments
The ruling clarify that GST obligations apply to all the cross-LoC trade conducted between 2017 and 2019. Enforcement of pending notices is expected to resume. The judgment also inclines with the constitutional standing that the territories falling under Pakistani occupation but claimed by India remains a part of India for all such domestic legal purposes, eliminating all ambiguities that previously allowed traders to avoid the GST compliance.
Conclusion
The ruling of the Court settles the long-standing uncertainty over fiscal and territorial status of cross-LoC trade with PoK by treating it as an intra-state trade under GST. It reinforces India’s legal claim over PoK by ensuring traders comply with tax obligations for past transactions, bringing clarity and uniformity in the GST regime to such cross border engagements.
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WRITTEN BY- SOUMITA CHAKRABORTY
