High Court Stops Rs. 16,261 Crore GST Recovery from JK Bank 

The High Court has put on hold the GST recovery notice of Rs 16,261 crore issued to Jammu and Kashmir Bank.

JK Bank challenged the GST notice through their lawyer. After hearing the case, Justices Rajnesh Oswal and Mohammad Yousuf Wani stopped the tax notice from being enforced.

The government lawyer asked for time to respond to the bank’s petition. The court noted that the bank had raised important issues that need to be properly examined.

The bank argued that all its branches are registered as a single entity under GST laws. Like other banks, JK Bank’s main activities involve taking deposits and giving loans through its branch network, with all branches being parts of the same bank.

The attorney clarified that a contemporary bank cannot survive without its branches. The headquarters of the bank and all branches constitute a single legal entity registered with the Reserve Bank of India.

He stated that interest paid to depositors and interest collected from borrowers flow through branches, with the difference becoming the bank’s profit or loss. The overall bank profit is calculated by combining all branch results, not by looking at individual branches.

The court heard that deposits collected by branches go into a common fund managed by the bank’s head office. This pool of money is then used to make loans through various branches. Sometimes, a branch might have more deposits than loans, which is why funds are managed centrally.

The lawyer emphasized that money itself is not taxable under GST laws. While activities related to money that charge separate fees are considered services, interest earned from deposits and loans is specifically exempt from tax with a “nil” tax rate.

The bank’s petition stated that fund transfers between different parts of the same bank are purely money transactions with no financial services involved. Since interest is exempt from tax, the bank had filed returns showing “nil” tax liability for interest related to fund transfers between branches.