Jammu and Kashmir Bank (J&K Bank) announced on Wednesday that it has received a Goods and Services Tax (GST) notice amounting to over Rs 16,000 crore. Of this, Rs 8,130.66 crore pertains to the GST demand, with an equal amount imposed as a penalty, issued by the joint commissioner of the central GST commissionerate in Jammu.
The bank has stated that it has taken appropriate legal action in the matter, as it believes that it has a strong case on merit. Expert opinions on the subject have stated that the demand is without legal justification and will be set aside by a court of appropriate jurisdiction.
“…we believe that the demand order shall have no material impact on the financials, operations, or other activities of the bank,” it said.
The bank said the notice pertains to GST being levied on interest receivable under the transfer pricing mechanism (TPM) between the corporate headquarters and branches from a common pool of funds being treated as financial services for the period July 2017 to March 2020.
TPM is an internal allocation and measurement mechanism for determining the pricing of incremental loans, investments, and deposits and for determining the profit contribution of various lending and borrowing units of a bank
According to the bank, since it is a single legal entity comprising its corporate headquarters as well as all its branches, it is legally obliged to reflect its financial statements prepared under the provisions of the regulatory laws applicable to it as a whole entity.
“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 of October 1999, wherein the RBI provided for the evolution of a fund transfer mechanism to supplement the asset-liability management in banks,” it said.
“J&K Bank, like other banks, has evolved the TPM and does not treat transactions recorded under such a mechanism as financial services that may attract provisions of GST law,” the bank added.
Shares of the lender fell 1.81 per cent on Wednesday to close at Rs 101.44.
About The Author
