J&K High Court Declares Cross-LoC Trade as Domestic Commerce: POK Is Integral Part of India, Rules Bench
In a far-reaching judgment with wide political and commercial implications, the Jammu and Kashmir High Court has ruled that trade across the Line of Control (LoC) between Jammu & Kashmir and Pakistan-occupied Kashmir (PoK) must be treated as intra-state commerce, not as import-export activity, since PoK remains an integral part of India under constitutional and legal understanding.
The decision came while hearing a group of petitions relating to the cross-LoC barter trade that was launched in 2008 as a Confidence-Building Measure (CBM) between India and Pakistan.
The trade route was shut down in April 2019, soon after the Pulwama terror attack that killed 40 CRPF personnel and escalated tensions between the two nations.
The petitioners challenged show cause notices issued by the Central Goods and Services Tax (CGST) authorities in Srinagar, questioning tax liabilities on inward and outward supplies conducted between 2017 — the year the GST regime came into effect — and 2019, when trade was suspended.
They contended that cross-LoC movement of goods should be treated as international import and export, and therefore exempt from GST.
However, the Division Bench of Justice Sanjeev Kumar and Justice Sanjay Parihar rejected the argument, making a clear observation that the areas under Pakistan’s control constitute a geographically recognized territory of Jammu & Kashmir.
There is no dispute that the region currently under Pakistan’s de facto control forms part of the territory of the erstwhile State of Jammu & Kashmir,” the judgment stated.
“Hence, the suppliers and the place of supply were within the same territory, making this cross-LoC activity purely an intra-state trade.”
The Bench noted that even counsel for the petitioners, Faisal Qadri, conceded that the nature of the trade—being between two parts of the same State—indicated that it cannot be categorized as an international commercial exchange.
When cross-LoC trade began through the designated points Uri (Kashmir) and Poonch (Jammu), it operated under the J&K Value Added Tax Act 2005, which treated it as a zero-tax barter system without currency transactions.
After the adoption of GST in 2017, no exemption was maintained, but petitioners continued declaring it as zero-rated and failed to include such transactions in filings, prompting the tax notices.
The petitioners argued that trade was governed through an SOP issued by the central government, and therefore exempt from the purview of the GST Act. They also claimed there was no deliberate concealment on their part.
The court disagreed, remarking that there was prima facie suppression of relevant information, as traders were “fully aware” that GST offered no special concession for cross-LoC barter operations.
It was the petitioners’ obligation to independently assess and discharge GST liability while filing returns,” the court emphasized.
The notices, the court pointed out, were served within the stipulated limitation period — at least six months before the expiry of the five-year window applicable for assessment.
While dismissing the petitions, the Bench granted the petitioners four weeks to submit formal responses to the show cause notices, observing that they have an adequate alternative remedy available under the law.
These petitions are either premature or alternative statutory mechanisms are available,” the order concluded.
