J&K Bank challenges ₹16,322 crore GST demand over transfer pricing interest | X
Srinagar headquartered private sector bank Jammu and Kashmir Bank hit with w whopping Rs 16,322-crore GST demand notice including Rs 81,130 crore tax liability and applicable penalties with interest of Rs 81,130 crore.
The tax demand is 1.5 times its total market capitalisation of Rs 11,273 crore. The The demand notice pertained to the period July 8, 2017 to March 31, 2020 for transfers under the bank Transfer Pricing Mechanism for interests received between corporate headquarters and branches from common pool of funds or the common resource – funds or liquidity shared by all the business.
The bank said it has strong case on merits and has reasonable belief on the basis of expert opinion on subject that the demand is without legal justification.
“The bank 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,” it said.
J&K Bank said the interest receivable under transfer pricing mechanism (TPM) between corporate headquarters and branches from common pool of funds, has been treated as financial services and a GST is levied on it.
The bank further added TPM is a critical component of the profitability measurement process, as it allocates the major component of profitability in a bank, net interest margin of the bank and 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 J&K Bank like other Banks have evolved the TPM and do not treat transaction recorded under such mechanism as financial service which may attract provisions of GST law.
