In a significant judgment that reasserts India’s legal claim over Pakistan-Occupied Jammu & Kashmir (PoJK), the Jammu & Kashmir and Ladakh High Court on Saturday (Nov 30) ruled that trade conducted across the Line of Control (LoC) between the Union Territory and PoJK must be treated as intra-state trade under the Goods and Services Tax (GST) regime. The decision came while hearing a batch of petitions filed by traders involved in barter-based cross-LoC exchanges between 2017 and 2019.
The division bench of Justice Sanjeev Kumar and Justice Sanjay Parihar dismissed multiple pleas filed by traders challenging the GST authorities’ show-cause notices. The petitioners had disputed both the territorial jurisdiction and the classification of the cross-LoC barter exchanges, insisting that such transactions could not legally fall within the framework of intra-state GST.
Court Reaffirms PoJK as Integral Part of India
In its detailed judgment, the High Court made a categorical observation that PoK remains an integral and inseparable part of the erstwhile State of Jammu and Kashmir, irrespective of Pakistan’s de facto control. Because of this constitutional and legal position, the court held that trade between J&K and PoJK during the relevant period occurred entirely within the territory of the former state.
“It is not in dispute that the territory currently under Pakistan’s de facto control legally forms part of the former State of Jammu & Kashmir. Accordingly, both the suppliers and the place of supply fell within the then State’s territory. The cross-LoC transactions carried out during the relevant tax period therefore constituted intra-state trade,” the bench noted.
The ruling not only settles the classification of GST liability for the 2017-2019 period but also reinforces India’s consistent constitutional stance on the status of PoK.
The traders had approached the High Court after receiving show-cause notices from GST authorities demanding tax payments on the barter exchanges that took place via two designated routes:
Srinagar-Muzaffarabad (Uri–Islamabad)
Poonch-Rawalakot (Chakkan-da-Bagh)
These routes facilitated cross-LoC trade, a confidence-building measure (CBM) between India and Pakistan since 2008. The trade operated exclusively on a barter system, with no monetary exchange involved, as per mutually negotiated terms between both countries.
The petitioners argued that because the trade involved no monetary transaction, the exchanges should be considered zero-rated and exempt from GST, and that the unique nature of LoC trade placed it outside the purview of standard tax classifications.
Their counsel further submitted that the LoC trade mechanism was a result of bilateral understanding and therefore could not be equated to domestic supply under GST law.
Court Directs Traders to Use Statutory Remedies
Rejecting these arguments, the bench ruled that the CGST Act already provides a comprehensive and “equally efficacious” mechanism for appeal, review, and adjudication. It emphasised that the traders must pursue the statutory remedies available under the GST framework rather than approaching the High Court directly through writ petitions.
“The petitioners cannot bypass the statutory remedies provided under the Act,” the bench said, dismissing all petitions and directing the traders to take their grievances before the designated GST authorities.
Cross-LoC trade, once considered a major CBM between India and Pakistan and a channel for people-to-people engagement, was suspended in April 2019 after intelligence agencies flagged concerns about misuse by terror groups, narcotics networks, and illegal financial channels. The barter trade, which often covered goods such as fruits, handicrafts, carpets, and dry fruits, was meant to boost local economies on both sides of the LoC.
The High Court’s latest ruling comes at a time when the trade remains suspended, but the legal and financial implications of past transactions continue to be scrutinised by tax authorities.
