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New Delhi, Dec 1: In a landmark ruling, the Jammu and Kashmir and Ladakh High Court has held that cross-Line of Control (LoC) trade with Pakistan-occupied Kashmir (PoK) will be treated as intra-state trade under the Goods and Services Tax (GST) law.

The court observed that PoK is legally part of the erstwhile state of Jammu and Kashmir, making supplies there subject to GST.

The decision, delivered by a division bench of Justices Sanjiv Kumar and Sanjay Parihar, marks the first time in 75 years that an Indian court has directly commented on the legal status of PoK in a civil or tax matter.

The ruling comes as a major setback for traders who had challenged show-cause notices issued by the GST department and were facing investigations into alleged tax evasion and terror funding.

Traders argued that between 2017 and 2019 they conducted barter trade across the Uri–Muzaffarabad and Poonch–Rawalakot routes under a mutual agreement between India and Pakistan, claiming the trade was zero-rated and exempt from taxation.

The court rejected these arguments, stating that the definition of location and supply is determined by law, regardless of the nature of the business.

In Oct 2008, Cross-LoC trade was launched as a confidence-building measure between India and Pakistan, allowing divided families and local economies to exchange goods such as fruits, pulses, carpets and handicrafts without currency transactions.

Jammu and Kashmir Joint Chamber of Commerce and Industry (JCCI), a federation of traders from both sides, was set up to regulate the initiative. At its peak, trade volumes ran into hundreds of crores annually.

Following the Pulwama terror attack in February 2019, which killed 40 CRPF personnel, the central government suspended LoC trade citing national security concerns. Investigations by the National Investigation Agency revealed that the barter routes were being exploited to smuggle narcotics, fake currency, and weapons, with proceeds diverted to terror networks.

Enforcement Directorate and Income Tax Department later uncovered irregularities including underreporting of imports, overreporting of exports, and undeclared profits, leading to tax notices.

With the High Court’s ruling, those notices now stand validated, and traders will face tax demands. The judgment also reinforces India’s constitutional position that PoK is an integral part of Jammu and Kashmir, a stance reflected in the 24 assembly seats reserved for PoK in the J&K legislature.

Analysts say the court’s observation could have wider implications in future cases involving territorial and trade disputes.

While trade federations like the JCCI continue to press for reopening the routes to support livelihoods, the government maintains that trade cannot resume until safeguards against terror financing are ensured. The ruling clearly defines that while cross-LoC trade was conceived as a bridge of peace, it cannot be allowed to become a conduit for illegal activity.