Ineligible ITC Under Section 17(5) of CGST Act 2017

So when we specifically talk about which ITC which can be claimed then in that case any purchases which is being done in furtherance of business or in more simplified words any ITC which is the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his/her business as per Section 17(1) of the Central goods and service tax 2017

Under the Central Goods and Services Tax (CGST) Act, 2017, Section 17(5) lists blocked credits, i.e., ITC that cannot be claimed, regardless of whether the goods/services are used in the course of business.

Key Ineligible ITC under Section 17(5):

1.Motor vehicles for transportation of persons (with seating capacity ≤13), except when used for:

• • Further supply of such vehicles
  • Transportation of passengers
  • Training on driving such vehicles

2. Vessels and aircrafts, except when used for:

• • Further supply
  • Transportation of goods or passengers
  • Training purposes

3. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, unless:

• • Used for making outward taxable supply of same category
  • Mandated by law (e.g., employee health checks)

4. Membership of a club, health, and fitness centre

5. Rent-a-cab, life insurance, and health insurance, except:

• • Where it is obligatory for employer under any law
  • Used for making outward taxable supply of same category

6. Travel benefits to employees on vacation (like leave or home travel concession)

7. Works contract services when supplied for construction of immovable property (except plant and machinery), except when:

• • It’s an input service for further supply of works contract service

8. Goods/services used for construction of immovable property on own account (even when used in course of business)

9. ITC on tax paid under composition scheme

10. Goods/services used for personal consumption

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

12. Tax paid due to fraud, suppression, misstatement (Section 74, 129, 130)

Important Case Laws Related to Ineligible ITC

1.Safari Retreats Pvt. Ltd. v. Chief Commissioner of CGST (2019)

• Facts: ITC was denied on construction of a shopping mall meant for leasing.
• Held: Orissa High Court allowed ITC, stating that leasing is a business activity.
• Status: Under appeal in Supreme Court. Caution advised in relying on this ruling.

2. M/s. Tara Exports v. Union of India (Madras HC, 2018)

• Facts: ITC refund on capital goods denied for exporters under inverted duty structure.
• Held: High Court favored the assessee, allowing refund.

3. M/s. Mohit Minerals Pvt. Ltd. v. Union of India (Gujarat HC, 2020)

• Issue: Double taxation and ITC restriction on ocean freight.
• Held: IGST on ocean freight (on CIF basis) struck down as unconstitutional.
• Impact: ITC eligibility in such contexts clarified.

4. Jay Bee Industries v. UOI (Punjab & Haryana HC, 2023)

• Issue: Credit blocked due to mismatch in GSTR-2A and 3B.
• Held: ITC cannot be denied if genuine purchase is proved with tax paid.

5. Calcutta High Court in M/s. Suncraft Energy Pvt. Ltd. v. Assistant Commissioner, CGST (2023)

• Issue: Denial of ITC due to supplier being non-compliant.
• Held: Buyer not responsible for seller’s default if due diligence done.