Payment Of Tax Cannot Legalise Unlicensed Activity, GST Registration Doesn't Confer Right To Conduct Business: J&K&L High Court

The High Court of Jammu & Kashmir and Ladakh has held that obtaining registration under the Goods and Services Tax Act, 2017, does not amount to authorisation to conduct a trade or business, nor can payment of tax legitimise an otherwise unlicensed commercial activity.

The High Court clarified that taxation statutes and regulatory licensing statutes operate in distinct spheres, and compliance with one cannot override mandatory licensing requirements under another.

The Court was hearing a batch of writ petitions filed by brick dealers challenging preventive and restrictive orders issued by the Licensing Authorities under the Jammu & Kashmir Brick Kiln (Regulation) Act, 2010, stating that they were barred from purchasing and trading bricks without obtaining a brick trading licence.

A Single Judge Bench comprising Justice Wasim Sadiq Nargal, while stating that “the GST Act as a fiscal legislation, enacted to regulate the levy and collection of tax on the supply of goods and services, does not confer or regulate the right to conduct any specific business or activity”, further clarified that “a registration under the GST Act merely enables the State to levy and collect tax on a transaction, and it cannot, by any stretch of interpretation, legalize an otherwise unlicensed or prohibited activity.”

The matter arose after preventive orders were issued by the Deputy Commissioners, directing that only those brick dealers holding valid licences under Rule 3 of the 2017 Rules could engage in the business of purchasing bricks from authorised brick kilns and selling them within different districts

Senior Advocate Vikram Sharma, challenging these orders on behalf of the petitioners, argued that the Brick Kiln (Regulation) Act applied only to manufacturers and not dealers, that the GST registration was sufficient to carry on trade, and the Deputy Commissioners lacked authority to act against them.

However, Senior AAG Monika Kohli, appearing on behalf of the respondents, submitted that licensing was mandatory for anyone dealing in bricks, including traders, to maintain environmental safeguards, traceability, price regulation, and compliance with labour and land-use norms.

GST Registration Does Not Exempt Traders from Licensing Requirements

The J&K High Court, upon hearing the matter, held that the GST Act is a fiscal legislation aimed at regulating taxation and revenue collection, not validating the legality of the trade itself.

Relying heavily on statutory interpretation, the Court observed that a registration under the GST Act merely enables the State to levy and collect tax on a transaction, and it cannot legalise an otherwise unlicensed or prohibited activity.

The Court explained that the Goods and Services Tax (GST) Act, as a fiscal enactment, “regulates revenue collection, not the legality of the trade itself”. Licensing statutes, on the other hand, the Court elaborated, “are regulatory instruments designed to ensure that the activity being taxed is lawful, safe, and compliant with public policy.”

The contention that payment of tax legitimises the business, even in the absence of a valid licence, “would lead to an absurd result, effectively allowing tax compliance to override statutory prohibitions or public welfare measures”, the Court concluded.

Scope of the J&K Brick Kiln Act, 2010

Addressing the contentions raised with respect to the provisions of the Jammu and Kashmir Brick Kiln (Regulation) Act, 2010, the Court held that the licensing mandate under Rule 3 of the Jammu and Kashmir Brick Kiln (Regulation) Rules, 2017 is not confined to brick kiln manufacturers, but also extends to those engaged in the business of purchasing, selling or stock-piling bricks.

While specifically referring to the Forms appended to the Jammu and Kashmir Brick Kiln (Regulation) Rules, 2017, the Court held that “Form 'B' would also encompass dealers, as it does not merely employ the term 'manufacture' but expressly includes 'sale and supply”, clarifying that “since dealers are engaged in the sale of bricks, they would necessarily fall within the ambit of Form 'B”.

The Bench observed that the statutory language was deliberately expansive, so that environmental and regulatory safeguards cannot be evaded merely by projecting oneself as a trader rather than a manufacturer.

The Brick Kiln Act, 2010 and the Rules of 2017, the Court held, were enacted to regulate the unrestrained brick trade, which has serious ecological and agricultural repercussions, and also encourages black-marketing and price manipulation. Therefore, extending licensing to dealers was a “conscious legislative determination” that furthers the object of the statute, the Court observed.

The Court also clarified that Deputy Commissioners are expressly empowered under the Act and the Rules to act as Licensing Authorities and enforce compliance, and therefore, their orders cannot be termed as without jurisdiction.

Right To Trade Under Article 19(1)(g) Is Subject to Reasonable Restrictions

Addressing the constitutional challenge, the Court held that the requirement of licensing is a reasonable restriction under Article 19(6). The Brick Kiln Act, the Court noted, is a regulatory statute enacted in the public interest to protect agricultural land, ensure environmental compliance, and maintain pricing transparency, while highlighting that licensing is constitutionally valid and does not violate the right to business.

The Bench stressed that no trade can be claimed as a matter of fundamental right when undertaken in violation of statutory requirements.

Consequently, the High Court upheld the validity of the licensing requirement for brick dealers. The licensing mandate under the Brick Kiln Act and the 2017 Rules was found to be compulsory even for dealers, and the Deputy Commissioners were held to be competent Licensing Authorities empowered to enforce compliance.

The Court accordingly dismissed the petitions, without costs.

Case Title: Kaher Singh & Others v. Union Territory of J&K & Others

Citation: 2025 LiveLaw (JKL)

Click here to read/download Judgment