High Court grants interim stay on Rs 16,261 crore GST demand against J&K Bank

By: Sajid Raina

Srinagar: The High Court of Jammu & Kashmir and Ladakh has stayed the recovery of a Rs 16,261 crore demand and penalty under the Goods and Services Tax (GST) regime issued against Jammu & Kashmir Bank.

The interim relief was granted after the bank filed a writ petition challenging the demand notice issued by the Additional cum Joint Commissioner, Central GST.

Represented by Advocate Tasaduq H Khawaja, the petitioner bank argued that the demand arose from a misinterpretation of its internal financial practices. The bank stated that it functions as a single legal entity registered under both the Central GST and the J&K GST Acts, with all its operations monitored by the Reserve Bank of India (RBI).

The bank’s counsel submitted that the funds moved between its branches and corporate office under a Transfer Pricing Mechanism (TPM) represent internal accounting measures and do not constitute taxable transactions.

According to the petition, the bank collects deposits through its branches and allocates those funds for lending within the same structure. It earns interest on loans and pays interest to depositors. These internal fund transfers are not carried out as services between distinct entities and do not meet the criteria for GST applicability.

The petition maintained that the funds involved in such transfers are not defined as goods or services under the GST Act, and the interest earned is exempt from tax. The bank further said it has consistently filed GST returns showing nil liability on these internal transactions.

The bank also referred to guidelines issued by the RBI in 1999 on risk and fund management, stating that the TPM system in question is used across the banking industry in India. The petitioner argued that the demand and penalty amount were based on a flawed interpretation of financial procedures.

Advocate T.M. Shamshi appeared for the Union Government and sought time to file a reply.

The division bench of Justice Rajnesh Oswal and Justice Mohammad Yousuf Wani observed that the case raised serious legal issues and issued an interim stay on the GST recovery process. The matter has been listed for the next hearing on May 7, 2025. —(KNO)