Blocked Credits Under GST‐ Section 17(5) of CGST ACT, 2017

We have once dreamed that there should be one tax for one nation and implementation of GST Act,2017 from 1^st July,2017 has fulfilled our dream. GST has implemented whole of India and number indirect and direct taxes have been submerged into GST. In earlier tax regime ,there were cascading affect of taxes and each sate government has their own rules and regulations to tax transactions in their states. After implementation of GST all other difficulties have been removed and there are fours components under GST Laws in India;

1. Central Goods and Services Tax (CGST) [also known as Central Tax] which is levied on intra-state or intra-union territory on supply of goods or services or both;

2. State Goods and Services Tax (SGST) [also known as State Tax] which is levied on supply of goods or services or both within the same state;

3. Union Territory Goods and Services Tax(UTGST) [also known as Union Territory Tax] which is levied on supply of goods or services within the same union territory;

4. Integrated Goods & Services Tax (IGST) [also known as Integrated Tax) on inter-state supply of goods or services of both.

The most important  part of GST ACT,2017 is availability set off facility of tax paid on eligible  inputs against taxes to be paid on output supply of goods and services.

But there are restrictions on some transactions of sale and purchase of goods or provisions of services on which input tax paid is not allowed to be set off against outstanding tax liability of taxable persons.

Input Tax Credit means claiming the credit of the GST paid on purchase of Goods and Services which are used for the furtherance of business. The Mechanism of Input Tax Credit is the backbone of GST and is one of the most important reasons for the introduction of GST.

As GST is a single tax levied across India (right from manufacture of goods/ services till it reaches the end customer), the chain does not get broken and everybody is able to take benefit of the same and there is seamless flow of credit.

Input Tax Credit: Input Tax Credit means the tax paid by the Registered Recipient of goods or services in the form of Central Tax (CGST), State Tax (SGST) or Union Territory Tax (UTGST) & Integrated Tax (IGST). Such tax is charged by the Registered Supplier at the time of sale of goods or services made to any Registered Recipient. It means this concept is applicable only for the buyer of goods or the recipient of services who has taken the GST registration.

ITC also includes: –

(a) the GST paid on reverse charge basis by the registered recipient of supply on certain specified goods or services such as GTA, Advocate services etc.

(b) IGST paid on import of goods.

NOTE;  from above it is clear that only registered person including  Input Service Distributor ,under GST can claim input tax credit ,paid by him on purchases used as inputs in furtherance of business of the buyer.

THERE ARE SOME GOODS & SERVICES TAXES (GST), YOU CAN’T CLAIM EVEN THOUGH YOU HAVE ALREADY PAID FOR IT WHEN YOU MADE YOUR PURCHASES OR EXPENSES. THOSE GST YOU CAN’T CLAIM IS CALLED BLOCKED INPUT TAX CREDIT.

SECTION 17(5) OF THE GOODS AND SERVICE TAX ACT,2017 DEALS WITH BLOCKED WITH INPUT TAX CREDIT;

Refer to the detailed provisions relating to Blocked credit as under:

1) Meaning-

As per the proviso, A registered person is not eligible to take input credits on GST paid on goods and services received by him under Section 17 (5) of CGST Act. 

BLOCKED CREDIT UNDER SECTION 17(5):

I. SECTION 17(5)(a):

(1) Motor Vehicle for transportation of person having approved seating capacity of not more than 13 persons(including driver of vehicle).

Except when used for:

1. Further Supply of Vehicles

2. Transportation of passenger (transport Agency)

3. For Training Classes

(2) Vessels and Aircraft

Except when used for:

1. Further Supply

2. Transportation of passengers

3. Imparting training on navigating such vessels

4. Imparting training on Flying such aircraft

5. Transportation of Goods

NOTE THAT ;

i) Earlier ITC was prohibited for all motor vehicles and now seating capacity criteria has been inserted in new clause.

Further specific prohibition for ITC on services of general insurance, servicing, repair and maintenance of motor vehicles was not there in old clause and in new clause it has specifically been prohibited to avoid disputes in this regard. Although normally tax payers were not availing ITC on such services.

ii) ITC would further be admissible for leasing, renting or hiring of motor vehicles when such motor vehicles are used for above said purposes or where the recipient is engaged in the manufacture of such motor vehicles or in the supply of general insurance services in respect of such motor vehicles insured by him.

 iii) The above notes i) & ii) are applicable to vessels also.

II. SECTION 17(5)(b) :

(i) Foods & beverages, outdoor catering, beauty treatment , health insurance, cosmetic & plastic surgery.

 Except it is used for:

Making outward taxable supply of the same category of services or an element of mixed or composite supply.

NOTE:

i) ITC would be available when the inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply.

(ii)Membership of a club, health and fitness Centre (No exception) (4)Rent a Cab , Life Insurance , Health Insurance except;

i)Where it is made obligatory by Government

ii)It is used for making outward taxable supply of the same category of services or an element of mixed or composite supply.

NOTE:

i) ITC would be admissible where it is obligatory for an employer to provide such supplies to its employees under any law for the time being in force.

(iii) Travel Benefits to Employees;

Provided that the Input Tax Credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force

III.  SECTION 17(5)(c);

Works Contract Service when supplied for construction of immovable property(not plant & machinery) except: 

Where it is an input service for further supply of Works Contracts;

NOTE:

a) The term “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

b)Further the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes— (i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises

III. SECTION 17(5)(d);

Goods & Services received for construction of immovable property (not plant & machinery) on his own account including when such Goods/services are used in Business. (Construction includes re‐ construction, renovation, additions or alteration or repairs to the extent of capitalization ,to the said immovable property);

NOTE:

a)The term “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

b)Further the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises

IV. SECTION 17(5)( e);

Person who made the payment of tax under Composition ( Section 10 of the GST Act, 2017) ;

 NOTE:

It may noted here that under composition scheme the tax cannot be charged by supplier from the recipient and accordingly question ITC availment by recipient does not arise.

V. SECTION 17(5)(g);

ITC cannot be availed on goods/service received by non‐resident taxable person except; Only Goods imported by him (10)Personal Use.

NOTE; ITC is admissible only in respect of supplies taken for business purposes. Thus supplies received for personal purposes are blocked.

VII.  SECTION 17(5)(h);

Goods lost, stolen, destroyed, written off or given off as gift or free sample;

NOTE; Such goods being not used for providing taxable supplies, the ITC thereon is blocked u/s 17(5).

VIII. SECTION 17(5)(I);

Any tax paid due to fraud cases which has resulted into –

 i)Tax paid under Section 74 – tax not paid /short paid due to fraud;

ii)Tax paid under Section 129- tax paid on detention and release of goods and conveyance in transit;

iii)Tax paid under section 130-tax paid on confistation of goods or conveyance and levied of penalty thereof.

 NEW PROVISION

General Insurance, Servicing, repair & maintenance in so far related to such vehicles, Vessels, aircraft are not allowed except if it is used for

1. Purpose specified therein;

2. If above services received by manufacturer of such vehicles, vessels, aircrafts;

3. If above services received by general insurance service provider in respect of such motor, vehicles.

COMPARISON BETWEEN OLD AND NEW PROVISIONS :‐

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DISCLAIMER ; The views expressed are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.