1. A free flow of input tax credit is a backbone of GST Law for eliminating cascading effects of taxes. However , section 17(5) of the CGST Act,2017 specifies certain Goods and Services as Blocked Credit . It means , a taxable person is not eligible to take Input Tax Credit ( ITC) on the goods and services specified under 17(5) of CGST Act 2017.
Sec 17(5) of the GST Act has been substantially amended vide GST Amendment Act 2018 applicable w.e.f.01 Feb 2019 . In this article , an attempt has been made to cover all the provisions , amendments , interpretations , case laws in respect of Blocked credit under GST Act.
As per sec 17(5) of the CGST 2017 – Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of section 18, input tax credit shall not be available in respect of the following:-
2. Motor Vehicle – 17(5) (a) of CGST Act – Input Tax Credit ( ITC) is not eligible in respect of motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:— (A) further supply of such motor vehicles; or (B) transportation of passengers; or (C) imparting training on driving such motor vehicles;
2.1 Vessels and Aircraft-17(5) (aa) of CGST Act :- ITC is not eligible in respect of vessels and aircraft except when they are used—(i) for making the following taxable supplies, namely:— (A) further supply of such vessels or aircraft; or (B) transportation of passengers; or (C) imparting training on navigating such vessels; or (D) imparting training on flying such aircraft; (ii) for transportation of goods;
2.2 Services related to Motor Vehicle , Vessels and Aircraft – 17(5) (ab) of CGST Act : ITC is not eligible in respect of services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa).
Exception : ITC in respect of services of general insurance , servicing , repair & maintenance in relation to Motor Vehicle , Vessels & Aircraft shall be available in following cases :-
(a) The motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein.
(b) Such services are used in the manufacture of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa).
(c) Supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him.( manufacturer of such motor vehicle is eligible to take ITC on insurance premium)
2.3 Eligibility of Input Tax Credit for Motor Car ( Case Laws/ Advance Ruling ) :
(a) Input Tax Credit (ITC) on purchase of motor vehicles for supplying rent-a-cab service is not admissible in terms of section 17(5)(a) of CGST Act- Mohana Ghosh,In re (AAR-WEST BENGAL)
(b) ITC is admissible for motor vehicle purchased as demo vehicles for promotion of sale by providing trial run to customer and capitalised in books of account as they are for purposes of business.
(c ) ITC is not admissible on purchase of vehicle used towards transportation of cash – CMS Infor Systems Ltd. In re (AAAR)2018.
(d) ITC is admissible on purchase of tippers and dumpers as they are not ‘motor vehicle’ – (FAQ by Directorate General of Taxpayer Services on 31-7-2017)
(e) ITC is not admissible on excavators or road rollers, as they are ‘motor vehicles’ as per MV Act.
3. Sec 17(5)(b)(i) of CGST Act 2017 – Input Tax Credit ( ITC ) shall not be available in respect of following supply of Goods or/and services :- Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance.
Exception : 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.
3.1 17(5)(b)(ii) of CGST Act 2017 – Membership of a club, health and fitness centre is not eligible for ITC .
3.2 17(5)(b)(iii) of CGST Act 2017 – Travel benefits extended to employees on vacation such as leave or home travel concession is not eligible for ITC.
3.3 Exceptions : Input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide to its employees under any law for the time being in force ( proviso to section 17(5)(b) of CGST Act inserted w.e.f. 1-2-2019.)
3.3.1. Input Tax Credit of canteen services provided to employees shall be available in view of proviso to section 17(5)(b) of CGST Act as according to section 46 of Factories Act, provision of canteen facility is mandatory if number of workers employed in the factory are 250 or more (proviso to section 17(5)(b) applicable w.e.f. 1-2-2019.])
3.3.2 The exemption is available only in respect of rent-a-cab, life insurance and health insurance services – Nipha Exports P Ltd., In re AAR (West Bengal).
4. Work Contract Works contract services when supplied for construction of an immovable property (other than plant and machinery) is not eligible, except where it is an input service for further supply of works contract service – section 17(5)(c) of CGST Act
4.1 Input tax credit shall be available to builder or contractor who himself is undertaking works contract service, as he is using these services for further supply of works contract service.
4.2 The expression “construction” includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property – explanation to section 17(5)(d) of CGST Act.
4.3 Input tax credit is available if expenses of renovation, repairs, reconstruction or alterations are not capitalized in books of account of taxable person.
4.4 Input tax credit is not available for goods or/and services received by a taxable person for construction of an immovable property on his own account including even if such goods or/and services used in the course or furtherance of business.
4.5 Warehouse constructed using pre-fabricated structure is immovable property and ITC of inputs used in such construction is not eligible – Tewari Warehousing P Ltd. In re  102 taxmann.com 295 (AAR-WB).
4.6 Input tax credit on procurement of plant and machinery shall be available.
4.7 Input tax credit is not available for Shed to protect plant and machinery as it is civil structure – Maruti Ispat and Energy P Ltd. In re (AAR-AP).2018.
4.8 Input tax credit of works contract services received for maintenance and repairs of mall is not admissible – Jabalpur Entertainment Complexes P Ltd. In re (2018) (AAR-MP)
5. GST paid under composition scheme – Goods or services or both on which tax has been paid under section 10 (composition scheme) are not eligible – section 17(5)(e) of CGST Act
6. Goods or services or both received by a non-resident taxable person – Goods or services or both received by a non-resident taxable person are not eligible for input tax credit, except on goods imported by him- section 17(5)(f) of CGST Act
Exception : Non Resident taxable person is eligible for ITC on import of goods
7. Goods and services used for personal consumption – Goods or services or both used for personal consumption are not eligible for input tax credit – section 17(5)(g) of CGST Act . Personal consumption means for non-business consumption by partners or directors or proprietor
8. Lost, stolen or destroyed goods and free samples – Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples are not eligible for input tax credit – section 17(5)(h) of CGST Act
8.1 In case of Exide Industries Ltd. v. CCGST (2019) it is held that If goods were not received in the factory, ITC is not available .
9. Gifts to customers/distributors – Input Tax Credit is not available on gold coins distributed among customers as gift based on target based sales -(Biostadt India Ltd. In re  (AAR-Maharashtra).
10. Free Samples – Free samples to unrelated persons will not be subject to GST but input tax credit will have to be reversed.
10.1 However, ITC is available on free samples given to related persons as it will be subject to GST (CBI&C circular No. 92/11/2019-GST dated 7-3-2019.)
10.2 Free supplies under CSR – Input Tax Credit is not available for free supply against CSR policy In Polycab Wires (P.) Ltd., In re  (AAR – KERALA)
11. ITC on goods supplied free for brand promotion or sales promotion – Input Tax Credit is not available on GST paid on expenses incurred towards promotional schemes (like foreign trip or gifts for achieving targeted sales) and goods given as brand reminders, as promotional products are not given to customers under any contractual obligation and are voluntarily given on certain conditions achieved by customers- Sanofi India Ltd., In re  (AAR – Maharashtra).
12. GST paid after detection of fraud or suppression or goods removed in contravention of GST Act – Any tax paid in terms of sections 74, 129 and 130 of CGST Act are not eligible for input tax credit. This covers GST paid after detection of fraud or suppression or goods removed in contravention of GST Act – section 17(5)(i) of CGST Act 129 (tax paid after detention of goods in transit for violations of provisions of e-way bill) and 130 (penalty paid after confiscation of goods).
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