- Cross-LoC trade has been suspended since 2019 amid India-Pakistan hostilities and security concerns
- Cross-LoC trade had started in 2008 as part of confidence-building measures
- PoK has always been considered part of J&K, reaffirming India's territorial claim
The Jammu and Kashmir High Court has ruled that trade between Jammu and Kashmir and the Pakistan Occupied Kashmir or PoK across the Line of Control is intra-state trade and therefore, no GST can levied on it.
Though cross- LoC trade remains suspended due to the hostilities between India and Pakistan since 2019, the ruling by a division bench is reaffirmation of the government's stand that PoK is part of Jammu and Kashmir and an integral part of India.
Even after the scrapping of Article 370, the J&K assembly continues to have 24 vacant seats reserved for the PoK. As per the erstwhile constitution of Jammu and Kashmir, the entire J&K including PoK is an integral part of India. J&Ks separate constitution was also scrapped with revocation of Article 370.
The High court, while considering petitions from traders across the Line of Control, said cross-LoC trade between Jammu and Kashmir and the PoK was intra-state because the PoK is part of Jammu and Kashmir.
"Therefore, the location of suppliers and the place of supply of goods were within the then State of Jammu Kashmir (now the Union Territory). The cross-LoC trade affected by the petitioners during the relevant tax period was nothing but intra-state trade," said the division bench of Justice Sanjeev Kumar and Justice Sanjay Parihar.
The petitioners had challenged show cause notices issued by the Superintendent CGST under the Central Goods and Services Tax Act, 2017. They argued that when trade began in 2008, intra-state sales tax was governed by the Jammu and Kashmir Value Added Taxes Act, which exempts cross-LoC trade from tax.
However, in 2017, when the GST regime was implemented, authorities began investigating the petitioners to determine if they had paid GST on their outward and inward supplies and show cause notices were issued to them.
The petitioners challenged the notices, arguing that the cross-LoC trade regulated by the Government of India's SOP issued on October 20, 2008, constitutes intra-state trade and is therefore exempt from the provisions of the CGST Act. They further contended that even if intra-state trade were assumed, the demand for tax would be invalid because it involved a barter system with no monetary exchange.
In 2008, following improved relations between India and Pakistan as confidence-building measures, both governments had agreed to permit free cross-LoC trade between them under specific terms and conditions.
However, on April 9, 2019, the Indian government suspended cross-LoC trade on grounds that trade routes were being misused to funnel illegal weapons, narcotics and counterfeit currency.
A statement from the Ministry of Home Affairs at the time revealed that probe by the National Investigation Agency had uncovered concerns that cross-LoC trade were operated by individuals closely associated with banned terrorist organisations.
The two most significant CMBs between India and Pakistan were the cross-LoC bus service and cross-LoC trade.
On April 7, 2005, then Prime Minister Dr Manmohan Singh inaugurated the first cross-LoC bus service, Karwaan-e-Aman or Peace Caravan, connecting Srinagar to Muzaffarabad.
Subsequently, on October 21, 2008, a barter trade began across two routes, Salamabad (Uri) - Muzaffarabad and Poonch-Rawalakot. Traders on either side of the LoC were allowed to exchange 21 mutually agreed items.
