HC puts on hold over` 16000 Cr GST notice to J&K Bank
Srinagar, Apr 8: The High Court of J&K and Ladakh Tuesday stayed demand notice issued by the Goods and Services Tax (GST) Department against J&K Bank asking it to pay Rs 16,000 Crore – Rs 8000 crore as Service Tax and Rs 8000 crore as penalty for three financial years.
Seeking response to a plea challenging show-cause notice and demand notice against the Bank, a bench of Justice Rajnesh Oswal and Justice Muhammad Yousuf Wani said: “In the meantime subject to the objections from other side, the operation of the orders impugned in this petition shall remain stayed”.
The court put on hold the show-cause and demand notice after it noted that certain issues raised by the Bank were required to be adjudicated.
J&K Bank through its counsel Tasaduq H Khawja has petitioned Court challenging the show-cause notice and demand notice against the Bank.
The Court issued notice to Ministry of Finance, Department of Revenue, Government of India, through its Secretary (Revenue), Goods and Services Tax Council through its Chairperson, Ministry of Finance; Central Board of Indirect Taxes & Customs through its Chairman, Commissioner Central Goods and Services Tax, Divisional-Jammu and Additional Commissioner/Joint Commissioner Central Goods and Services Tax Jammu and Assistant Commissioner (Preventive), Central Goods & Services Tax, Divisional-Jammu.
Besides it issued notice to J&K government through its Principal Secretary Finance Department.
The bank has based its plea on various grounds saying the show-cause notice and demand notice have been issued arbitrarily and without justification.
The Bank contends that the show cause notice issued for the period of July’17 to March’18, April’18 to March’19 and April’19 to March’20; along with GST Form DRC-01 dated 05.08.2024 and the Order No. 26- CGST-J&K-JC-2024-2025 dated 04-02-2025 issued by Joint Commissioner Central Goods and Services Tax Jammu are in contravention to the provisions of CGST Act/JK GST Act.
It says by virtue of the show cause notice and order dated 04-02-2025 an unjustified demand of Rs 16,261,32,85,536 as GST with penalty and interest under CGST Act, JKGST Act is made by the Additional Commissioner/ Joint Commissioner CGST Commissionerate, Jammu.
The bank’s case veers round the decision of the said Additional Commissioner/Joint Commissioner, treating and subject the fund transfer from Headquarter to its Branches and from Branches to the Headquarter of the bank to GST under the Heading “Financial Service”.
According to the J & K Bank’s plea, it is a company with Corporate Headquarters (Head Office) and has business units (branches) at different places within and outside Jammu and Kashmir for the purposes of carrying out banking business.
The plea underscores that the Bank’s branches are registered under Central Goods and Services Tax Act and J&K Goods and Services Tax Act as a single entity. “The core activities of the bank, like that of any other banking company, are acceptance of deposits from depositors and lending money to borrowers through the network of its branches, which are extensions, the limbs, of the bank and in essence part and parcel of the Bank”.
It is contended that the existence of a bank cannot be conceived of in the modern world without its branches.
“The Corporate Headquarters of the bank together with its branches constitute a single legal entity and is registered as such with the Reserve Bank of India.”
The Bank says that the interest is paid to depositors whereas interest is charged from the borrowers through the branches and the difference in the two results in the profit or the loss of the branch.
While the petition contends that the income, profit and profit of the bank bank are determined after consolidating the balance sheet of all branches, “the profit and loss of any particular branch is of no consequence as the bank is seen as a combination of its branches.”
Besides, it says the deposits mobilized by the branches are transferred to a common pool of funds managed by Corporate Head Office of the bank. “Out of the common fool of funds money is made available to borrowers through network of branches to enable the branches concerned to make advances and earn interest there from”.
The bank submits that in the course of business, it is possible, and it usually happens, that at particular time a particular branch may have more deposits for which interest is paid and less advances from which interest could be earned.
“It is for this reason that funds received are transferred to common pool of funds managed at corporate head office”.
While the bank points out that the interest earned is distributed between branches and head office through internal pricing system, referred to as Fund Transfer Price Mechanism (TPM), it says, that important function of TPM is to provide basis for exchange of funds between business units of the Bank.
“It is actually an internal allocation and measurement mechanism used for determining the pricing of incremental loans and deposits and for determining the profit contribution of various lending and borrowing units of a bank,” the Bank says. “It is a means to identify the areas of strength and weaknesses within the Bank.”
The Bank contends that money itself is excluded from the definition of goods and services in the Goods and Services Act and hence not liable to any tax. “However an activity relating to use of money or its conversion, for which a separate consideration is charged, is a service”.
However, the bank says, the interest earned by extending deposits, loans or advances in so for consideration is interest is specifically exempted from tax, charging “nil” tax.
“Whatever funds are transferred between different business units of bank are purely money transactions involving no financial services,” the Banks says, underlining that it being so, coupled with fact that interest is otherwise exempted from tax, bank had filed its returns from time to time and shown ‘nil’ liability in respect of interest retained by it qua funds transferred to or received from branches”.
“The respondent No. 6 (Additional Commissioner/Joint Commissioner Central Goods and Services Tax, Divisional-Jammu) has totally misdirected himself and treated transfer of funds by the petitioner bank to its business unit in the course of its business as a service to a separate entity and proceeded to identify the interest retained by it a service charge and consequently fastened liability on the petitioner bank even though Corporate Headquarters and its business units constitute one entity and is registered as a one entity with the respondents (government),”.
According to the plea, JKB is the only bank in the country to have been exposed to such a type of tax on transfer of funds to its business units. “If it is allowed, the very bank would collapse”.
The Bank pleads: “Besides, since GST is to be passed on to customers, it will render fixation of interest rate by the Reserve Bank totally impossible”.
With these contentions the bank argues the orders passed by the Additional Commissioner/Joint Commissioner Central Goods and Services Tax are totally preposterous and without jurisdiction.
