J&K Bank served a massive Rs 16,000-crore GST notice. Bank says it is taking legal recourse.

By
Ziraat Times
-

Ziraat Times News Network

Srinagar: Jammu & Kashmir Bank has received a Goods and Services Tax (GST) demand notice from the Joint Commissioner of the Central GST Commissionerate in Jammu, amounting to approximately ₹8,130.66 crore. The figure includes the GST liability, applicable interest, and a penalty of the same amount, bringing the total demand to around ₹16,000 crore.

The bank’s market capitalization stands at ₹11,273.91 crore, making the GST demand notably higher than its total market value. In response, J&K Bank has stated that this demand will not have a material impact on its financials, operations, or overall business activities.

A senior J&K Bank officials told Ziraat Times that the said the interest receivable under transfer pricing mechanism (TPM) between corporate headquarters and branches from common pool of funds, has been treated as financial services and a GST is levied on it.

Following the announcement, the bank’s share price experienced a decline, dropping to an intraday low of ₹99.26 per share on the National Stock Exchange, a decrease of 3.95%. However, it later recovered sligh trading at ₹101.35, down 1.94% around 11:50 AM on the same day.

In a statement on its website, J&K Bank said J&K Bank said it has a  strong case on merits and has reasonable belief on the basis of expert opinion on subject that the demand is without legal justification and will be set aside by the court of appropriate jurisdiction.

“The bank has taken appropriate legal recourse in the matter and based on our assessment and legal course adopted by the bank and expert opinion, we believe that the demand order shall have no material impact on the financials, operations or other activities of the bank,” it said.

“Therefore the most important function of TPM is to provide a basis for the exchange of funds between different business units of a bank. TPM is an internal allocation and measurement mechanism for determining the pricing of incremental loans/investments/deposits and for determining the profit contribution of various lending and borrowing units of a bank,” J&K Bank said.

It further noted that TPM is a critical component of the profitability measurement process, as it allocates the major component of profitability in a bank, net interest margin (NIM).

“It’s a management decision tool and is useful means to identify the areas of strength and weaknesses within the bank. Since the bank is, in law a single legal entity constituting of its corporate headquarter as also all the branches, it is legally obliged to reflect its financial statements prepared under the provisions of regulatory laws applicable to it for its whole entity,” it said.

J&K Bank said all the TPM entries are purely notional in nature and when entity level financial statements are prepared, the expenditures and incomes accruing from within the bank on account of TPM interest distribution are nullified.

“The said mechanism has been adopted by all banks in India pursuant to Reserve Bank of India (“RBI”) guidelines dated 07.10.1999, with the subject ‘Risk Management Systems in Banks’ wherein the RBI provided for evolution of Fund Transfer Mechanism to supplement the Assets Liability Management in Banks,” it said.

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161 COMMENTS

  1. The TPM mechanism is allowed by RBI to all Banks operational in the entire country. The claim is of joint commissioner GST carries no weight. The TPM mechanism was adopted by the JKBank in 2007 while as it was adopted by SBI and other banks in 1987. GST is not applicable on TPM.

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