Input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business.

ITC is used for payment of output tax. ITC being the backbone of GST and there are many condition to claim ITC on any items. But there are some cases where ITC is blocked so that recipient is not able to claim ITC. Section 17(5) of GST Act deals with the blocking of ITC on specified inward supplies.

Blocked credit list {Section 17(5)}

1. Motor Vehicles and other conveyances

E.g. TaxTown is purchased a car and registered with the name of TaxTown in RTO office and uses the car for business purpose only. But in this case TaxTown cannot take ITC on this car.

Exception to ITC on Motor vehicle (ITC can be claimed in these cases):-

(i) Further supply of such Vehicles or conveyance –

 If registered person is dealing in car supplying the dealer can claim ITC. For e.g. Audi car dealer purchase car from a company and paid tax on this car, then dealer sold out that car to TaxTown. Now in this case, Audi can claim ITC and deduct his final tax liability.

(ii) Transportation of passenger –

If any person is providing service by way of transportation of passenger than ITC can be claimed on the vehicle purchased.

For example – if Red Bus is purchasing buses for transportation of passenger than Red Bus is eligible for ITC.

(iii) Imparting training on driving, flying, navigating such vehicles or conveyance-

If Maruti driving school purchasing vehicle for training of the driver then Maruti driving school can claim ITC on that vehicle.

Also, If Airplane training is given by some training school than he is also eligible to take ITC Credit.

(iv) Transportation of goods –

If any vehicle is used for transport of goods from one place to another place then vehicle is eligible for ITC.

2. Food and beverages, beauty treatment and others

Food and beverages Outward catering Beauty treatment
Health services Cosmetic surgery Plastic surgery

However, when inward supply is used for making of outward taxable supply of the same category or as an element of a taxable composite or mixed supply, then ITC can be claimed.

e.g. TaxTown is taking outward catering services for celebrating annual day at Park hotel so in this TaxTown is not eligible for ITC.

e.g.  when airline company is taking packed food for the passenger than ITC is eligible for inward supply. It is considered as part of the composite supply of air travel services.

e.g. If any actress/production house is taking beauty treatment services than inward supply is not eligible for credit.

e.g. When restaurant is taking inward supply of beverage than restaurant can claim ITC.

3. Membership   

Membership of below:-
Club Health Fitness center

e.g. TaxTown is taking membership of gold gym for its employees then inward supply is not eligible for ITC.

e.g. X Ltd. Purchased club membership for its director for client meeting so in this case inward supply is not eligible for ITC.

4. Rent-a-cab, life insurance and health insurance  

These above mentioned inward supply is not eligible for ITC. But there are some exceptions where we can claim ITC.

(i) The government has made mandatory for an employer to provide specific service to its employees.

e.g. Indian government has made that all employee health insurance is mandatory. so in this case TaxTown Ltd has took the health insurance of all the employees. Then ITC is available to TaxTown Ltd for health insurance inward supply.

e.g. Haryana government issue a notification for all the employer of gurgaon to provide mandatory cab services to all the employees after 9’0 clock. TaxTown Ltd hires a rent-a-cab to provide transportation of its staff. Then TaxTown Ltd is eligible to take ITC of cab services.

(ii) If inward supply of these services is used for making outward taxable supply of the same category or as an element of taxable composite or mixed supply.

e.g. XYZ travels rent-a-cab services to BZ travels. Then BZ Travels can claim ITC.

e.g. XYZ Ltd. insurance company is providing Re-insurance services to LIC. Then in this case LIC Re-insurance services is eligible for ITC.

5. Travel benefits

If travel benefit is extended to its employees on vacation such as LTC or home travel concession, then inward supply of travel is not eligible for ITC.

But if travel is for business purpose then can be claimed ITC.

6. Works contract

Works contract services for construction of an immovable property Except When

It means ITC credit is available in these cases:-

  • Input services for further supply of works contract services.
  • For construction of immovable property i.e. plant and machinery only.

e.g. A company hires contractor to construct an office building to house the plant supervisory staff. ITC on this service is not eligible.

e.g. If the contractor has sub-contracted the work to another contractor. In this case, contractor is eligible to book the credit of sub-contract service. It is an input service for further supply of works contract services.

e.g. Manufacturing company is taking service for construction of  AC plant in the factory. It is eligible for ITC since it is considered as plant & machinery.

7. Immovable property on his own account

ITC is not available for goods/services or both used for construction of an immovable property on his own account. But if inward supply is used for plant & machinery then eligible for ITC even if it is used for own use.

When inward supply is used for construction of immovable property and immovable property is used in the course or furtherance of business then ITC is not available.

e.g. XYZ Ltd is developer of buildings. It builds a corporate office for itself. XYZ Ltd cannot take credit of inward supply even the office used for business purpose.

e.g. XYZ Ltd construct boiler to manufacture. ITC is available since it is Plant & Machinery.

8. Composition Scheme

ITC is not available for inward goods/services or both received by composite dealer. Since composite supplier is not entitle to collect any GST from recipient, so dealer is eligible to book any ITC.

9. Non-Resident Person

Non-resident person is not eligible for ITC on goods/services or both. But Non-resident person is eligible for ITC on goods imported and supplied in india.

10. Personal consumption

ITC is not available on goods/services or both used for personal consumption.

11. Lost goods, gift and free samples

ITC is not available in following case-

Lost Goods Stolen Goods Destroyed
Written off Gift Free samples

e.g. TP Ltd purchased 20 rolls of yarns for manufacturing the cloth. But due to accident of truck 10 rolls are destroyed and 10 rolls are stolen due to the accident. Hence 20 rolls of yarn are not eligible for ITC.

e.g.  TP Ltd has written off the unsold inventory in the books of account. Thus in this case ITC need to be reversed.

e.g. TP Ltd has given a TV as a gift to the dealer. Since it is not taxable supply then ITC is not admissible.

12. ITC is not admissible on Search & Seizure

No ITC is available if tax is paid because of any following reason-

  • Fraud, willful misstatement or suppression of facts
  • Detention, seizure and release of goods in transit
  • Confiscation of goods.

Author Bio

Qualification: CA in Practice
Company: TaxTown
Location: New Delhi, New Delhi, IN
Member Since: 04 Apr 2018 | Total Posts: 2

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Tags : goods and services tax (4749) GST (4349) input tax credit (104)

13 responses to “Blocked Input Tax Credit (ITC) of GST”

  1. Calalit says:

    As per Section 2(25) of Motor Vehicles act,1988, Motor cab means motor vehicles constructed for carrying not more than 6 passenger (excluding driver). In this case Rent-a-cab does not include Bus services hence it is eligible for ITC.

    Explanation- As there is no clarification regarding cab in ITC, so we are using general definition that is used in GST Notification. Please refer N/N 17/2017-CT(Rate).
    Link-
    http://www.cbec.gov.in/resources//htdocs-cbec/gst/Consolidated_notification_CGST_17.pdf

  2. DHEERAJ CHAUHAN says:

    Great …..Going to make video on same topic…with ur name lalit ji

    • Calalit says:

      Thank u Mr Dheeraj. Please share video link once you completed.

      • DHEERAJ CHAUHAN says:

        My Youtube channel is “Passion for perfection” by Dheeraj Chauhan.u can visit there…and will also share link with you…may be possible vedio will be there on same topic by coming tuesday

  3. S.Babu says:

    Please provide scheme of entry relating to reversal of ITC under Section 17(5)(h).

  4. Parveen Narwal says:

    Congrats Mr. Lalit u write excellent .

    • Pankaj Kumar says:

      Hi Mr Praveen, can you clarify one query

      Rent a cab services – As per GST Sec 17(5) not allowed/ ineligible for input credit. Now query is:
      Under earlier Service Tax regime “Rent a cab services” cover all type of motor cab services including Bus (that is renting of any motor vehicle), however in GST regime there is no clarification regarding BUS services with passenger capacity of more than 12, taken by one of the Company to carry their employees from one office premises to Factory premises. Further the service provided to the employees is not being carried out as a business activity and this may be understood as this is used or intended to be used in the course or furtherance of business purpose only. However the actual expenditure incurred in connection with Bus services taken is borne by the company.
      When there is no clarification under GST regarding BUS services taken/ hired and also does not fall under the definition of Section 17(5) of GST Act:- Rent a cab, then, why, we can’t take INPUT CREDIT paid on Bus services availed exclusively for carrying employees from one place to another place.

      • Pankaj Kumar says:

        Sorry, Query is for My Lalit Bharwaj

      • Calalit says:

        As per Section 2(25) of Motor Vehicles act,1988, Motor cab means motor vehicles constructed for carrying not more than 6 passenger (excluding driver). In this case Rent-a-cab does not include Bus services hence it is eligible for ITC.

        Explanation- As there is no clarification regarding cab in ITC, so we are using general definition that is used in GST Notification. Please refer N/N 17/2017-CT(Rate).
        Link-
        http://www.cbec.gov.in/resources//htdocs-cbec/gst/Consolidated_notification_CGST_17.pdf

        • Pankaj Kumar says:

          Thanks Mr Lalit for your quick response.

          • Pankaj Kumar says:

            Hi Mr Lalit, Thanks for such a nice explanation with support of proper notification.
            As per ST regime:
            “Cab” means – (i) a motorcab, or (ii) a maxicab, or (iii) any motor vehicle constructed or adapted to carry more than twelve passengers, excluding the driver, for hire or reward.

            However in the attached N/N 17/2017-CT (Rate) notification, it’s talk’s about the:
            “radio taxi”, “maxicab”, “motorcab” and “motor cycle”, however there is NO clue for “any motor vehicle constructed or adapted to carry more than twelve passengers” or “Bus services”.
            This Notification got end at “maxicab” means any motor vehicle constructed or adapted to carry more than six passengers, but not more than twelve passengers, excluding the driver, for hire or reward.
            My query is regarding BUS services carrying more than 12 passenger.
            I request you kindly focus on this specific, if possible.

          • Calalit says:

            Hi Pankaj,
            Please ignore whatever is written in ST. Just concentrate on GST. In Gst law this is the only option. In GST, motor cab or maxi can doesn’t include bus so bus service is eligible for ITC.
            In ST, there were proper explanation regarding the Cab service but in GST there is no specific explanation then General law prevail.

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