Apportionment and Blocking of ITC U/s 17, read with GST rate notified for service by Government.
Section 17 of CGST Act, 2017 deal with apportionment and blocking of the Credit. On other hand Government has notified the rate of GST for services where the credit for some service provider such as transport of goods and passenger and Foremen service for chit Fund has block either fully or restricted manner.
The credit has been blocked either fully or restricted manner at end point of supply, therefore cascading effect will be Nil in case of service recipient is unregistered person, but if the service recipient is a registered person then it will have cascading effect, the cost of product/service has bear the cost of tax.
On other hand credit of Input has block either fully or restricted manner of the Service provider who engaged in providing of transport of passenger and Goods.
Sec-17-Apportionment of credit;
| Sec. | Service | Allowed |
| 17(1) | Where the goods or services or both are used partly for business and partly for other purposes | Proportionate credit. |
| 17(2) | Where the goods or services or both are used partly for taxable supplies and partly for exempt supplies. | Proportionate credit. |
| 17(4) | A banking company or a financial institution including a non-banking financial company
|
50% of Credit |
Sec-17-Blocked of credits;
| Sec. | Service | Allowed when they are used |
| 17(5)(a) | Motor vehicles and other conveyances | 1) further supply of such vehicles or conveyances ; or
2) transportation of passengers; or 3) imparting training on driving, flying, navigating such vehicles or conveyances; 4) for transportation of goods; |
| 17(5)(b)(i) | Food and beverages, outdoor catering, beauty treatment, health services ,cosmetic and plastic surgery | Making an outward taxable supply of the same category. |
| 17(5)(b)(ii) | Membership of a club, health and fitness Centre | No Credit |
| 17(5)(b)(iii) | Rent-a-cab, life insurance and health insurance | (A) the Government notifies the services which are obligatory for an employer or
(B) for making an outward taxable supply of the same category; |
| 17(5)(b)(iv) | Travel benefits extended to employees on vacation such as leave or home travel concession; | No Credit |
| 17(5)(c) | Works contract services when supplied for construction of an immovable property (other than plant and machinery) | where it is an input service for further supply of works contract service |
| 17(5)(d) | Goods or services or both received for construction of an immovable property (other than plant or machinery) on his own account.
Note: Following shall be treated as immovable property; i) telecommunication towers; and (ii) Pipelines laid outside the factory premises. |
No Credit |
| 17(5)(e) | Goods or services or both on which tax has been paid under section 10 | No Credit |
| 17(5)(f) | Goods or services or both received by a non-resident taxable person | Credit allowed on goods imported. |
| 17(5)(g) | Goods or services or both used for personal consumption; | No Credit |
| 17(5)(h) | Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; | No Credit |
| 17(5)(i) | Any tax paid in accordance with the provisions of sections 74, 129 and 130 | No Credit |
Analysis of Clause (C) and (d) of Sec 15(5)
GST Rate for service has been notified by Government and impose restriction on ITC in following cases of following service providers;
1. Transport of Passenger Service;
| S.No | Service | Rate | Condition |
| 1 | Transport of passengers, by-(i) Air conditioned contract/stage carriage other than motor-cab; (ii) a radio taxi. | 5% | No ITC |
| 2 | Supply of tour operators’ services | 5% | No ITC |
| 3 | Renting of motor-cab | 5% | No ITC |
| 4 | Transport of passengers by rail (other than sleeper class) | 5% | with ITC of input services |
| 5 | Transport of passengers by air in economy class | 5% | with ITC of input services |
| 6 | Transport of passengers, by air, embarking from or terminating in a Regional Connectivity Scheme Airport. | 5% | with ITC of input services |
| 7 | Leasing of aircrafts under Schedule II [5 (f)] | 5% | with ITC of input services |
Comparison with service Tax position:
| S.No | Service | Rate | Condition |
| 1 | Transport of passengers service by road
|
Exempt | By a stage carriage, Radio Taxi |
| 15% | Contract carriage | ||
| 2 | Supply of tour operators’ services | 3.75% | Package tour (NO ITC) |
| 6% | Others (NO ITC) | ||
| 3 | Renting of motor-cab | 6% | No ITC |
| 4 | Transport of passengers by rail (other than sleeper class) | 4.5% | With Full ITC |
| 5 | Transport of passengers by air | 6% | with ITC of input services |
2. Transport of Goods service;
| S.No | Service | Rate | Condition |
| 1 | Transport of Goods by GTA Including transport of used household goods for personal use. | 5% | NO ITC |
| 2 | Transport of Goods by Rail | 5% | With ITC of Service |
| 3 | Transport of Goods by Vessel | 5% | With ITC of Service |
Comparison with Service Tax Position;
| S.No | Service | Rate | Condition |
| 1 | Transport of Goods by road by GTA | 3.75% | No ITC |
| 2 | Transport of Goods by Rail | 4.5% | With Full ITC |
| 3 | Transport of Goods by Vessel | 7.5% | No ITC |
3. Foreman of Chit Fund Service;
| S.No | Service | Rate | Condition |
| 1 | Services provided by foreman of chit fund in relation to chit | 12% | with ITC of input services |
Conclusion: The purpose of GST was to remove double taxation, cascading effect and dispute of jurisdiction of Tax on goods or services, as regard cascading effect of tax has removed, but with some exception discuss above. The credit under section 17 of CGST Act, has block at end point, therefore no impact of cascading of tax on the cost to ultimate consumer of that service or Goods which is not a registered person.
To curb the practice of booking personal expenses as business expenses by the registered person the credit has been blocked under section 17 of CGST Act
In case of construction service of immovable property for own account, the credit has been block which is logical on the ground that GST is not attract on sale of that property.
On other hand credit for special category of service provider who provide the service of transporter of passenger and goods is blocked.
(Author CA Amit Kumar can be reached at caamitdhama@gmail.com)
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