J&K Bank has been slapped with a GST demand notice of over ₹16,000 crore, the bank has informed stock exchanges. The bank, on its part, has maintained that the demand has no legal justification.
“This is to inform that the bank has received a demand dated February 4, 2025, from the Joint Commissioner, Central GST Commissionerate, Jammu, for GST liability of ₹81,30,66,42,768 with interest as applicable and penalty of ₹81,30,66,42,768,” the bank said in a regulatory filing. The bank’s shares declined by over 2 per cent and closed at ₹99.92 on Friday.
Demand notice pertains to the period July 8, 2017 to March 31, 2020, for transfers under the bank’s Transfer Price Mechanism (TPM). The tax department has raised the demand saying that interest receivables under TPM between the corporate headquarters and branches from the common pool of funds is of financial services and attracts GST.
According to the regulatory filing, in a bank, the common resource — funds or liquidity — is shared by all the business units. 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 lending and borrowing units of a bank.”
Further, it is a is critical component of the profitability measurement process, as it allocates the major component of profitability in a bank, Net Interest Margin (NIM). It is a management decision tool and is a useful means to identify the strengths and weaknesses within the bank. “Since the bank is in law a single legal entity constituting its corporate headquarters as also all its branches, it is legally obliged to reflect its financial statements prepared under the provisions of regulatory laws applicable to its whole entity,” the bank said, adding that all the TPM entries are purely notional in nature and when entity-level financial statements are prepared, the expenditure and income accruing from within the bank on account of TPM interest distribution is nullified.
The bank also said that the TPM mechanism has been adopted by all banks in India pursuant to RBI guidelines dated October 7, 1999. “J&K Bank, like other banks, has evolved the TPM and does not treat transactions recorded under such a mechanism as a financial service, which may attract provisions of the GST law. The bank has a strong case on merit and has reasonable belief on the basis of expert opinion that the demand is without legal justification and will be set aside by a Court of appropriate jurisdiction,” the bank said.
It also said it 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.”
