Blocked Credits under Goods & Services Tax (GST)

Article explains Meaning of Input Tax, What is eligible ITC in GST, Conditions to claim credit, What is Blocked Credit under GST, Items on which credit not allowed in GST, Who can claim refund in GST and Amendment Notification with respect to the provisions of the Input Tax Credit.

I. Introduction & Meaning of Input Tax

“input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—

(a) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5- (Levy and Collection) of the Integrated Goods and Services Tax Act;

(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9- (Levy and Collection) of the respective State Goods and Services Tax Act; or

(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7- (levy and collection) of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy;

As per Sec 16 of the CGST Act 2017, every registered person shall subject to such conditions and restrictions as may be prescribed and in the manner specified and will be entitled to the credit of input tax charged on the supply of goods and/ or services which are used or intended to be used in the course or furtherance of his business.

Sec 17 of the CGST Act 2017 deals with the Apportionment of Credit and Blocked Credit. As per subsection 5 of the Sec 17 of the CGST Act 2017, the Input tax Credit cannot be availed  for a certain class of supply of goods and services. In other words it can be interpreted that Sec 17(5) of the CGST Act 2017 deals with the items on which credit is not allowed under GST.

II. What is eligible ITC in GST?

There are certain conditions mentioned in the law which are treated as the valid conditions for availing credit under GST and hence those items attribute to the eligible ITC under GST.

III. Conditions

*Note: It shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise.

Proviso to Sec 16(2) : If the recipient of services fails to pay (value + tax) within 180days from date of invoice, (ITC availed + interest) shall be added to his output tax liability

IV. What is Blocked Credit under GST?

Blocked credit under GST means the supply of goods and services on which the availment of credit has been restricted by the relevant provisions of law.

V. Items on which credit not allowed in GST

Following credits are the Blocked Credits under GST/ Items on which credit is not allowed in GST

1. Motor Vehicles and Conveyances, exceptions are there

2. Foods and Beverages, outdoor catering, Beauty Treatment, health Services, cosmetic and plastic surgery

3. Sale of membership in a club, health, fitness center.

4. Rent a cab, health insurance and life insurance, exceptions are there

5. Travel benefits extended to employees

6. Works contract service , exceptions are there

7. Goods and/or services for construction of an immovable property

8. Goods and/or services where tax have been paid under composition scheme

9. Goods and/or services used for personal use

10. Goods or services or both received by a non-resident taxable person except for any of the goods imported by him.

11. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples

12. ITC will not be available in the case of any tax paid due to non payment or short tax payment, excessive refund or ITC utilized or availed by the reason of fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.

13. GST Input Tax Credit on Restaurant’s and Hotel Accommodation

1. Motor Vehicles and Conveyances

Input Tax Credit is blocked on the Motor Vehicles and conveyances but there are certain exceptions as to this rule which are as mentioned below-

a. ITC will be available when motor vehicles are used in the business of supplying cars.

b. ITC will be available when motor vehicles are used for the Transportation of passengers. For example the tour agencies are eligible to avail Input Tax Credit on the purchase of buses etc for providing services related to transport of passengers.

c. If any motor vehicles are used for providing services in relation to the imparting of training on driving, flying, navigating such vehicle or conveyance, then ITC can be claimed on such motor vehicles.

d. ITC will be eligible on such motor vehicles which are used to transport goods from one place to another. It is pertinent to mention here that this will not constitute Goods Transport Agency.

2. Food, Beverages, Club Memberships and others

Following items are not eligible for Input Tax Credit

• Food and Beverages
• Outdoor Catering
• Beauty Treatment
• Health Services
• Cosmetic and Plastic Surgery

It is pertinent to mention here that in the above cases , the ITC will be eligible if the category of inward and outward supply is same or the component is related to the a mixed or composite supply under GST.

3. Sale of membership regarding a Club , Health, Fitness Centre

Input tax Credit is not available for the fees paid on account of membership for gyms, clubs etc.

4. Rent a cab, Life Insurance and Health Insurance

These items are not the eligible items for availing Input Tax Credit, however this carries a certain set of exceptions which are mentioned below-

– If any service is provided by the employer to an employee as an obligation made mandatory by the Indian Government under any current law in force.

– If the category is the same for the inward supply and outward supply or if it part of the mixed or composite supply

5. Travel

No Input tax Credit is available on the travel benefits given to the employees such as Leave or Home Travel Concessions. It is to be noted that ITC will be allowed for travel for business purposes.

6. Works Contract & Construction of an Immovable Property

It is to be noted that this provision is not applicable for the inputs used in the manufacturing of Plant & Machinery.

7. Composition Scheme

A dealer opted for composition scheme under Sec 10 cannot avail Input Tax Credit on the payments of tax made by him.

8. Non Residents

Input tax Credit cannot be availed on the goods and services received by a non resident taxable person. It is to be noted that ITC can be availed by him if such goods are imported by him.

9. Items of personal use

Needless to say that Input tax Credit will only be eligible on the goods / services used for business purposes and no Input tax credit will be allowed on the goods used for personal purposes.

10. Free Samples and Destroyed Goods

Input Tax Credit cannot be availed on the goods lost, stolen, destroyed, written off or given off as gift or free samples.

11. ITC in fraud cases

No benefit is given by law relating to any fraudulent transaction done by the tax payer , thereby implying that Input tax Credit cannot be availed which has resulted into non or short tax payment, excessive refund or ITC unutilized.

12. Input Tax Credit on Restaurants & Hotel Accommodation

The standalone restaurants are supposed to charge 5% GST but the law does not allow them to avail Input tax Credit. The exception to this provision is that the restaurants which are part of hotels also and are having room tariffs exceeding Rs. 7500/- can avail Input tax Credit, however the rate of GST will not be 5% and instead 18%.

VI. Who can claim refund in GST

– An applicant can claim refund of tax paid on zero rated supplies of goods and services or both or on inputs or inputs services used in making such zero rated supplies

– An applicant can claim refund of unutilised ITC in the case of the tax rate on the input being higher than the tax rate on the output

– An applicant can be refund of tax paid on the supply of goods/ services which were provided wholly or partially and invoice was not issued

– If there is any confusion in the nature of transaction i.e. whether interstate or intrastate, refund of tax can be initiated

VII. Amendment Notification with respect to the provisions of  Input Tax Credit

Input Tax Credit Central Goods and Services Tax (Amendment) Rules, 2019 Notification No. 03/2019 – Central Tax 29/01/2019