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Article explains when Input Tax Credit is not available under GST, What are the exception to rule/provisions of non availability of Input Tax Credit  under GST and relevant explanations. Input Tax credit under GST is not available on  Motor vehicles for transportation of persons having approved seating  capacity of not more than 13 persons (including the driver), Vessels and aircraft, Motor Car related expenses, Membership of a club, Health and fitness centre, Travel benefits extended to employees on vacation such as leave or home travel concession and on various other items subject to exceptions, which are detailed below-

Sr No. Input Tax credit not available Exceptions –Input credit available Explanation
(a) Motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver) (i)If motor vehicles are used for making following taxable supplies

(A) Further supply of such motor vehicles, or

(B) Transportation of passengers, or

(C) Imparting training on driving such motor vehicles

  • If capacity of MV is less than or equal to 13 (including driver) ,Input credit will be available if used for specified purpose only.
  • If capacity of MV exceeds 13 (including driver), Input credit shall be available if used or to be used for furtherance of business.
(aa) Vessels and aircraft (i) If vessels and aircrafts are used for making following taxable supplies.

(A) Further supply of such vessels or aircraft, or

(B) Transportation of passengers

(C) Imparting training on navigating such vessels

(D) Imparting training on flying such aircraft

(ii) For transportation of goods

  •  Services of general insurance,
  • Servicing,
  • Repair and maintenance

If they are related to motor vehicles, vessels or aircraft

(i) Where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein

(ii) Where received by a taxable person engaged –

(I) In the manufacture of such motor vehicles, vessels or aircraft or

(II) In the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him

(b) (i)
  • Food and beverages,
  • Outdoor catering,
  • Beauty treatment,
  • Health services,
  • Cosmetic and plastic surgery,
  • leasing, renting or hiring of motor vehicles, vessels or aircraft,
  • life insurance and health insurance
  • Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both 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
  • 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
For example, assuming the government passes a rule for all employers to provide mandatory cab services to female staff in night shifts ABC Ltd hires a rent a cab to provide to transportation to its female staff on night shifts

Then ITC will be available to ABC Ltd on the GST paid to the rent a cab service.

(b) (ii) Membership of a club, Health and fitness centre
(b) (iii) Travel benefits extended to employees on vacation such as leave or home travel concession
(c) Works contract services when supplied for construction of an immovable property (other than plant and machinery)
  • ITC shall be available if there is sub-contracting for construction of immovable property, then the contractor can avail the ITC
  • Immovable property is plant and machinery i e ITC on works contract services used for construction of immovable plant and machinery is available
  • ITC to work contract services availed by Builders/ developers for providing outward supply of services, would be eligible for ITC
  • XYZ makes some repair work in its office building and treats the expenditure as revenue expenditure, then it can take input tax credit
  • If the expenses are capitalised in the books, then no ITC is available
(d) Goods or services or both received by a taxable person for construction of an immovable property on his own account, (other than plant and machinery), even when such goods or services or both are used in course or furtherance of business
  • Inward supply of goods or services for construction of an immovable property for ‘own use’ would not be eligible for ITC
  • On the contrary if the person is building such immovable property for the further selling then he is eligible to avail the ITC
Explanation 1 -Term ‘construction’ includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.
Sr. No. Input credit not available Explanation
Explanation 2  :-Term ‘Plant and Machinery’ means apparatus, equipment, 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

  • Land, building or any other civil structures.
  • Telecommunication towers.
  • Pipelines laid outside the factory premises
(e) Goods and/or services on which tax has been paid under section 10

(Composition Levy)

  • Composition Scheme is a simple and easy scheme under GST for taxpayers
  • Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover They cannot charge GST from their customer They need to pay tax out of their own pocket
  • This scheme can be opted by any taxpayer whose turnover is less than INR 1 5 crore
  • No Input Tax Credit can be claimed by a dealer opting for composition scheme
(f) Goods or services or both received by a non-resident taxable person except on goods imported by him
  • A non-resident taxable person is a person who temporarily supplies any goods or services with in India even though they are not a resident of the taxable territory.
  • No ITC shall be available to such person in respect of the goods and services availed by him in India.
  • However, ITC shall be available on the Goods imported by such person.
(g) Goods and/or services used for personal consumption
(h) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
  • Lost – It includes goods getting lost as part of process loss due to any abnormal activity.
  • Stolen – When any goods are found to be lower upon physical verification, it may be considered as stolen.
  • Destroyed – Any goods which get destructed due to any natural calamity like flood, earthquake or a man made event like fire, water leakage etc.
  • Written off – If any goods are having a certain value as per the books of accounts but are completely written off due to any reason, this clause will get attracted.
  • Disposed off by way of gift or free samples

– Any goods which are disposed through these mechanism will be covered here.

-E.g.. Free samples given by the pharma companies are also covered by the clause and no ITC shall be available in relation to such free samples.

The objective behind blocking input credit in above cases is to avoid leakage of tax. The government will not be able to  get any tax benefit on the goods lost/ disposed off by way of free gifts etc. if it allows input credit in such cases.

Above view has been confirmed by department also by Circular No. 92/11/2019-GST dated 7 March 2019. Advance ruling authorities has also given similar opinion in case of Sanofi India Limited and Surfa Coats (India) Private Limited.

(i) Any tax paid in terms of section 74, 129 or 130. Section 74 Taxes are not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or willful misstatement or suppression of facts.

If the supplier is making payment of taxes under forward charge, no input tax credit will be available to the recipient.

In case of reverse charge, if the recipient is making payment of taxes, even the recipient will not be allowed to avail input tax credit.

Section 129 – Detention, seizure and release of goods and conveyance in transit.

Section 130  – Confiscation of goods and/ or conveyance and levy of penalty.

In both the cases, if any payment is made by any person under these sections, no input tax credit will be available.

There is a practical challenge in implementing this provision is that how recipient will get to know that supplier has deposited tax by reason of fraud etc.  Generally, recipient claims input credit on the basis of tax invoice which does not contains any such details. Supplier has paid tax under fraud is decided by the courts which takes longer time period to decide. However, time limit for the recipient to take input credit is 30 September of next FY.

Circular No. 123/42/2019– GST dated 11 November 2019 allows 120 % input credit of invoices uploaded by the suppliers. It seems that when government allows input credit to recipient only when suppliers uploads their invoices in the GST return, it seems sr. no. (i) of Section 17 is practically redundant.

Author Bio

-Chartered Accountant with more than 11 years of work experience in the role of Indirect Taxation -Certificate course of MDP from IIM (Raipur), GST from ICAI and Export-Import Management from IIFT -Currently working in Rockwell Automation (Fortune 500), previously worked in and KPMG -S View Full Profile

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May 2024