• Dated 22^nd December, 2025

Cross-LoC Trade Treated as Intra-State Supply under GST (Taxable under CGST & J&K SGST – No IGST or Zero Rating) as PoK Is Constitutionally Part of India

Brief Facts Involved

M/s New Gee Enn & Sons and other traders were engaged in Cross-LoC trade between Indian-administered Jammu & Kashmir and Pakistan-occupied Kashmir (PoK) under a barter-based arrangement introduced in 2008. Under the pre-GST VAT regime, such trade was treated as exempt/zero-rated. However, after the introduction of GST in July 2017, the traders did not disclose these transactions in GST returns, believing them to be non-taxable.

However, the Directorate General of GST Intelligence, during their investigation found that the outward and inward supplies arising from cross-LoC barter were not being disclosed in returns. The GST department took the position that these supplies were intra-State that no exemption existed for cross-LoC trade, and that traders had suppressed the transactions. Accordingly, the Superintendent, CGST and CX Range-I, Srinagar, had issued a SCN under section 74 of the CGST Act, 2017 read with J&K GST Act, 2017. Hence, the extraordinary writ has been filed by the Assessee for challenging the said SCN.

Assessee 's Contentions:

The assessees argued that Cross-LoC trade is not a normal domestic supply and should not attract GST. They contended that such trade was historically treated as exempt/zero-rated under VAT, and the same understanding continued post-GST.

It was also implied that movement of goods across the LoC resembles international trade or a special category transaction, governed by SOP dated 20.10.2008 issued by the Ministry of Home Affairs, arising out of confidence-building measures between India and Pakistan. Further, such trade is barter-based, with no monetary consideration and hence, according to them, does not constitute a "supply" liable to GST.

Thereby falling outside from the scope of intra-State GST levy. Hence, non-reporting of such transactions in GST returns was claimed to be bona fide and not suppression.

Department's Contentions:

The Department argued that PoK is constitutionally part of India, being part of the erstwhile State of Jammu & Kashmir as per Article 1 of the Constitution. Further, as per Section 2(56) of the CGST Act, "India" means the territory as defined under Article 1 of the Constitution.

Since both the supplier and place of supply lie within the same State, the transaction qualifies as an intra-State supply, attracting CGST + J&K SGST. Furthermore, under Section 7 of the CGST Act, supply includes transactions made for consideration, and consideration includes non-monetary consideration also. Hence, barter transactions are taxable supplies, notwithstanding absence of cash flow.

Accordingly, no exemption notification under Section 11 of the CGST Act exists for Cross-LoC trade. Furthermore, such continued non-disclosure after GST implementation amounted to suppression of facts.

Court's Decision:

The Hon'ble J&K and Ladakh High Court held that:

• PoK is legally and constitutionally part of India, irrespective of current de-facto control. GST law adopts the constitutional definition of India, and therefore cannot treat PoK as foreign territory.
• Such Cross-LoC trade does not constitute international trade, as goods do not cross India's customs frontier in law.
• Since both ends of the transaction fall within the same State (erstwhile J&K), such trade is an intra-State supply under GST. Consequently, these transactions are liable to CGST and J&K SGST, and not IGST or zero-rating.
• Absence of currency exchange does not take the transaction outside GST net. Hence, such supplies are fully taxable.

BTA's Comment:

This judgment is landmark and constitutionally significant, as it firmly establishes that taxation statutes must follow constitutional sovereignty, not geopolitical realities. It brings clarity to GST treatment of Cross-LoC trade, ends ambiguity inherited from the VAT era, and prevents any indirect recognition of PoK as foreign territory through tax interpretation. The ruling also serves as a template for interpreting other statutes that rely on the constitutional definition of "India," reinforcing India's legal and sovereign position while ensuring uniform GST administration.

Case Ref: M/s New Gee Enn & Sons v. Union of India (WP(C) 1938/2024 and connected matters) dated 27.11.2025

Author: Saket Shaw