The Jammu and Kashmir Bank has received a ₹200.20 crore demand order for GST liability from the Additional Commissioner, Central GST Commissionerate, Jammu. According to the bank's regulatory filing, the demand order pertains to the period beginning from February 23, 2020 till March 2024 for transactions under the Banks Transfer Price Mechanism (TPM). The latest demand includes a tax amount of ₹200.20 crore, along with applicable interest and a penalty of ₹200.20 crore. The bank emphasized that it has a strong case on merits and believes the demand is without legal justification.
The bank stated that since it is a single legal entity comprising its Corporate Headquarter and all branches, it is legally obliged to reflect financial statements prepared under regulatory laws for its whole entity. As reported by The Hindu BusinessLine, the bank noted that all TPM entries are purely notional in nature and when entity level financial statements are prepared, expenditures and incomes from TPM interest distribution are nullified. The bank believes the demand order will have no material impact on its financials, operations or other activities. The GST demand arises from interest receivable under the TPM between the Corporate Headquarters and branches from a common pool of funds, which has been treated as financial services.
The bank highlighted that the TPM mechanism has been adopted by all banks in India pursuant to Reserve Bank of India's 1999 guidelines on 'Risk Management Systems in Banks'. According to the filing, the RBI provided for evolution of Fund Transfer Mechanism to supplement the Assets Liability Management in banks. The bank emphasized that TPM is a management decision tool and a critical component of the profitability measurement process, facilitating the exchange of funds between business units and being aligned with Reserve Bank of India guidelines.
The bank mentioned that already a 'Stay Order' has been granted by the High Court of Jammu and Kashmir & Ladakh at Srinagar against a similar GST demand on TPM transactions for the bank on another GST registration of UT of Jammu and Kashmir. As reported by The Hindu BusinessLine, this legal protection provides additional confidence in the bank's position regarding the current demand order. The bank's assessment, based on expert opinion, indicates that the demand order will have no material impact on the financials, operations, or other activities of the Bank.
