J&K High Court Stays ₹16,260 Crore GST Demand Against Jammu & Kashmir Bank [Read Order]

In a recent order, the High Court of Jammu & Kashmir and Ladakh stayed the recovery of a GST demand and penalty totaling Rs. 16,261 crore issued against Jammu and Kashmir Bank.

The demand was challenged by the Bank through a writ petition, represented by Advocate Tasaduq H Khawaja, against a notice issued by the Additional cum Joint Commissioner, Central GST.

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The petitioner bank’s counsel argued that it operates as a single legal entity registered under both the Central and J&K GST Acts, and that its corporate headquarters and branches function collectively as one institution under the supervision of the Reserve Bank of India. They argued that the internal movement of funds between branches and the corporate office under its Transfer Pricing Mechanism (TPM) was an accounting process and not a taxable transaction under GST.

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The petition pointed out that in banking operations, funds collected from depositors through branches are pooled centrally and reallocated for lending through the same network. The Bank earns interest on advances made and pays interest to depositors. These internal transactions, which are key to calculating overall profit, are not independent activities and do not amount to services rendered between separate entities.

They argued that the funds transferred within the Bank were merely internal allocations and did not involve any financial services. The money itself is excluded from the definition of goods and services under the GST Act, and interest income is specifically exempt from tax. The Bank had consistently filed GST returns with nil liability on such transfers.

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They submitted that the entire demand, including an equal amount of penalty, was based on an incorrect reading of internal financial processes. The Bank pointed out that similar TPM systems are used by all banks in India in accordance with the RBI’s 1999 guidelines on risk and fund management. The petitioner expressed confidence that the demand would not withstand judicial scrutiny.

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Counsel for the Union Government, Advocate T.M. Shamshi, appeared on behalf of the respondents and sought time to file a detailed reply.

The bench comprising Justice Rajnesh Oswal and Justice Mohammad Yousuf Wani observed that the matter raised huge legal issues and ordered an interim stay on the GST demand notice. The case is scheduled for the next hearing on May 7, 2025.

To Read the full text of the Order CLICK HERE

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