Cross-LoC trade subject to GST rules; PoK part of India

J&K High Court Ruling on Cross-LoC Trade and GST

A bench of the Jammu & Kashmir and Ladakh High Court, comprising Justices Sanjeev Kumar and Sanjay Parihar, ruled that trade conducted across the Line of Control (LoC) between Jammu & Kashmir and Pakistan-Occupied Kashmir (PoK) qualifies as intra-state trade under the Central Goods and Services Tax (CGST) Act 2017. The Court affirmed that the areas currently under de facto Pakistani control (PoK) remain constitutionally and legally part of the territory of the erstwhile State of Jammu & Kashmir in India. Consequently, supplies involved in cross-LoC trade are subject to GST rules, and traders must self-assess and declare GST on these transactions.

Legal Reasoning Behind the Classification

The Court examined various legal and factual aspects and concluded that since PoK is part of the original territory of Jammu & Kashmir, trade across the LoC is not inter-state or international but intra-state under Indian GST law. There was no exemption notification under Section 11 of the CGST Act for cross-LoC barter trade. Therefore, both inward and outward supplies by traders engaged in cross-LoC barter trade are taxable events under GST. The Court dismissed arguments against GST applicability, such as the absence of currency exchange in barter trade or the limitation period for taxation.

Implications of the Verdict

This judgement clarifies the status of cross-LoC trade transactions for taxation purposes, removing ambiguities in GST classification. Traders who previously avoided declaring GST on these transactions may now face retrospective tax liabilities with possible interest and penalties. The ruling also sets a precedent for interpreting "place of supply" and "location of supplier" in ambiguous territories, especially regions under foreign de facto control but claimed legally as Indian territory.

“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.” — J&K High Court

The J&K High Court ruling legally affirms PoK's status as Indian territory for GST purposes, classifying cross-LoC trade as intra-state and taxable under GST law.

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