High Court today stayed the recovery of GST along with penalty issued to Jammu and Kashmir Bank for an amount of Rs 16261 crores.
The Bank challenged the GST notice issued by the Additional cum Joint Commissioner Central (GST) on various grounds through its counsel Tasaduq H Khawaja. The Division Bench of Justice Rajnesh Oswal and Justice Mohammad Yousuf Wani after hearing the advocate Khawaja stayed the impugned notice.
Advocate Shamshi DSGI caused an appearance on behalf of the Union Government and sought time to file a response. “A perusal of the writ petition reveals that certain issues have been raised by the petitioner Bank which are required to be adjudicated”, the bench said and stayed the operation of impugned notice/orders.
The petitioner-bank with its branches is 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 petitioner-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 petitioner bank and in essence part and parcel of the bank.
The bank counsel submitted 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 Reserve Bank of India.
He said 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 and the income and profit of the petitioner bank is 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.
The court has been apprised that the deposits mobilized by the branches are transferred to a common pool of funds managed by Corporate Head Office of the bank and out of the common pool of funds money is made available to borrowers through a network of branches to enable the branches concerned to make advances and earn interest therefrom.
“In the course of business, it is possible, and it usually happens, that at a 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 a common pool of funds managed at the corporate head office”, advocate Khawaja added.
He put his thrust on the arguments that the 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, activities relating to use of money or its conversion, for which a separate consideration is charged, is a service. However, 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 a bank are purely money transactions involving no financial services. It being so, coupled with the fact that interest is otherwise exempted from tax, the petitioner 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 plea of bank read. (Excelsior)
