Cross-LoC trade held intra-state supply; composite SCN under Sections 74 and 107 CGST upheld, writs dismissed

HC held that cross-LoC trade is intra-state supply within Jammu & Kashmir and amenable to CGST/JKGST. It found prima facie suppression of facts by petitioners, treating the impugned notices as issued under Section 74(1) CGST, and held them within limitation. Composite SCN covering FY 2017-18 and 2018-19 was upheld as valid given year-wise breakup and clarity of allegations. The issue of possible double taxation on barter (inward and outward supplies) was left open for GST authorities. Observing that effective statutory remedies exist under Sections 74 and 107 CGST, HC declined to exercise writ jurisdiction and dismissed all petitions as premature or devoid of merit.

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Issues: (i) Whether cross-Line of Control (LoC) barter trade is an intra-state supply under the GST enactments; (ii) Whether the impugned show cause notices are attractable to Section 74(1) of the CGST Act, 2017 (i.e. notice for fraud/willful mis-statement or suppression of facts) or are notices under Section 73; (iii) Whether the show cause notices issued under Section 74(1) are barred by limitation under Section 74(2) read with Section 74(10); (iv) Whether a composite (bunched) show cause notice covering tax periods in two financial years is permissible under the CGST/JKGST Acts; (v) Whether the availability of statutory remedy under Section 107 bars entertainment of writ petitions under Article 226.

Issue (i): Whether cross-LoC barter trade is an intra-state supply under GST.

Analysis: The statutory definitions treat an intra-state supply as where the location of the supplier and place of supply are in the same State/Union Territory. The territorial definition of India and the statutory definition of State (Jammu & Kashmir) were applied to the factual matrix that the trade occurred between parts of the then State of Jammu & Kashmir (including territory under de facto control of Pakistan). The trading arrangement under the SOP (2008) was a barter arrangement between persons across the LoC within the territorial ambit of the State.

Conclusion: The cross-LoC barter trade, as characterised on the facts, is an intra-state supply for the purposes of the CGST/JKGST enactments.

Issue (ii): Whether the impugned notices fall within Section 74(1) rather than Section 73.

Analysis: Sections 73 and 74 operate on distinct grounds Section 73 for non-fraudulent short payment/non-payment and Section 74 where fraud, willful mis-statement or suppression of facts is involved. The impugned notices' recitals state non-declaration of facts, deliberate non-cooperation with investigation, failure to supply invoices and an assertion that, but for departmental inquiry, the evasion would have remained undiscovered. Those averments, taken at prima facie level, invoke the concept of suppression as defined in the statute.

Conclusion: Prima facie the impugned notices have been issued on grounds falling within Section 74(1) (suppression of facts) and not merely under Section 73.

Issue (iii): Whether the Section 74 notices are time-barred under Section 74(2) read with Section 74(10).

Analysis: Section 74(10) prescribes a five-year period for passing an order and Section 74(2) requires issuance of notice at least six months prior to the expiry of that period. The due dates for furnishing annual returns for the relevant years as extended were identified and the show cause notices were issued within the window required by Section 74(2).

Conclusion: The impugned show cause notices under Section 74(1) are not barred by limitation as per Sections 74(2) and 74(10).

Issue (iv): Whether bunching (a composite show cause notice covering two financial years) is permissible.

Analysis: The GST enactments do not prohibit issuing a composite notice for multiple periods provided statutory requirements are met: specification of period(s), issue within limitation, clear grounds and year-wise quantification, and compliance with principles of natural justice. Bunching is impermissible only where these requirements are lacking (e.g., no year-wise quantification, vagueness, absence of specific evidence per period, part of the notice time-barred, or prejudice to the assessee).

Conclusion: A composite show cause notice covering the two financial years is permissible where it contains year-wise break-up, specific allegations and is within limitation; the notices in question meet those criteria on a prima facie reading.

Issue (v): Whether availability of remedy of appeal under Section 107 precludes entertaining writ petitions under Article 226.

Analysis: The High Court's discretionary power under Article 226 is subject to the rule that an effective and efficacious statutory remedy ordinarily precludes exercise of writ jurisdiction. Exceptions exist (e.g., fundamental rights, breach of natural justice, orders wholly without jurisdiction or vires challenges). Where the challenged action is amenable to the statutory remedy and the controversy involves disputed facts and available remedies, the Court may decline to entertain the writ petition and direct pursuit of the statutory route.

Conclusion: In view of the prima facie validity of the show cause notices and the availability of effective statutory remedies (including appeal under Section 107), the writ petitions are not maintainable and the petitioners are to be relegated to the statutory remedies.

Final Conclusion: The decided legal effect is that on the prima facie record the cross-LoC barter trade qualifies as intra-state supply; the impugned notices prima facie fall within Section 74(1); such notices are within limitation; composite notices are permissible where statutory and procedural safeguards are observed; and because efficacious statutory remedies exist, the constitutional writ petitions are declined and the petitioners must pursue the prescribed statutory remedies and proceedings.

Ratio Decidendi: Where supplies occur between locations within the territorial ambit of the same State/Union Territory, they constitute intra-state supplies under the GST enactments; a show cause notice invoking penalty for suppression of facts is properly issued under Section 74(1) when the notice itself alleges deliberate non-declaration or non-cooperation amounting to suppression, and such notices issued within the statutory limitation and with period-wise quantification may validly be framed as composite notices; availability of an effective statutory appeal ordinarily bars exercise of writ jurisdiction.

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