By Admin 
Jammu and Kashmir and Ladakh High Court has given an important decision saying that cross-Line of Control (LoC) trade between India and Pakistan occupied Kashmir (PoK) will be considered as intra-state trade as per GST law. The court says that PoK is legally a part of the erstwhile state of Jammu and Kashmir, hence the supplies there will be considered as intra-state trade.
This decision is a big blow to the traders who are facing investigation in tax demands and terror funding cases and who had challenged the show-cause notice on this issue.
For the first time the court commented on the status of POK
This is the first time in the last 75 years that an Indian court has made a direct comment on the legal status of PoK in any civil or tax case related to J&K. The division bench of Justice Sanjeev Kumar and Justice Sanjay Parihar was hearing the petition of several traders in this matter.
The traders argued that between 2017 and 2019, they had traded with the people of PoK in the barter system. He said that this business is zero-rated and should not be taxed.
LoC trade stopped after Pulwama attack
After the martyrdom of 40 CRPF soldiers in the Pulwama attack in 2019, the central government closed the LoC trade points of Uri-Muzaffarabad and Poonch-Rawalkot. Later, NIA investigation revealed that a network of traders was using this barter trade and the same money was later going into terror funding.
After this, ED and Income Tax Department also started investigation and irregularities like under-reporting of imports, over-reporting of exports, undeclared profits came to light. On these grounds, notices for sales tax and GST were sent.
Why did the court consider it intra-state trade?
The court clearly said that PoK is legally a part of the Indian state of Jammu and Kashmir. Therefore, the location of supply and the place of supply will be considered within Jammu and Kashmir only. In such a situation, the cross-LoC trade at that time will be intra-state trade only and GST will be applicable on it.
The court said that the petitioners have alternative legal remedies under the CGST Act 2017, hence their petition cannot be accepted here.
Traders’ argument rejected
Traders said that the barter trade between Chakkan-da-Bagh (Poonch) to Rawalakot and Uri to Muzaffarabad was run under a mutual agreement between India and Pakistan. There was no tax on such trade and no exchange of currency.
But the court did not accept these arguments and said that whatever be the nature of business, the definition of location and supply is decided by law, hence GST will be applicable.
After this decision of the High Court, the old show-cause notices of the GST department have now become stronger. Traders will have to face tax demands. This observation of the court regarding the status of PoK may prove important in other cases in future also.