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Input tax credit not allowed under GST u/s 17(5) of CGST Act (Blocked credit)

The GST Act is still going from lot of changes with respect to its provisions and different rates of taxes. One of the important aspects of GST is on which supplies is the input tax credit not available or is prohibited.

CA Amit Maheshwari

The GST Act is still going from lot of changes with respect to its provisions and different rates of taxes.

One of the important aspects of GST is on which supplies is the input tax credit not available or is prohibited.

Provision governing the prohibition of input tax credit on certain supplies:

Under section 17(5) of CGST Act, there are certain supplies on which input tax credit under GST is not available.  These supplies can also be said as blocked credit.

Note on supplies on which Input Tax credit is not available:

1. Motor vehicles and other conveyances except when they are used

a) For making further supply of such vehicles or conveyances

b) Transportation of passengers

c) Imparting training on driving, flying, navigating such vehicles or conveyances

d) For transportation of goods.

Examples where credit of motor vehicles can be availed:  Dealer of vehicles, cab providers, trucks/vehicles used by factories for transportation of goods.

It is important to understand that there is nothing mentioned about whether the credit would be available on purchase of motor vehicle. Since, the act provides that the credit is not available on motor vehicles it can be concluded that all input tax credit in relation to motor vehicle cannot be claimed except used in the supplies as mentioned above.

2. Supply of goods/or services such as:

a) Food and beverages

b) outdoor catering,

c) beauty treatment,

d) health services,

e) cosmetic and plastic surgery

except where an inward supply of goods or services or both of a particular category 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;

Example: Purchase of food items by a company, beauty treatment used by the person in a hotel.

However, if the person is in business of same category of goods or services input will be allowed.

3. Membership of a club, health and fitness center

4. Rent-a-cab, life insurance and health insurance except where-

a) The Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or

b) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and

c) Travel benefits extended to employees on vacation such as leave or home travel concession;

Here the important exception is that if such supply of goods or supply is used by registered person for making outward taxable supply of same category or services or both then the input of such inward supply is allowed. Also, if such inward input supply is used in making a taxable composite or mixed supply then also the input is allowed.

For Example: The free cabs are provided by hotels to guests for pick and drop facility to airport. The rent charged by the cab owner from the hotel can be claimed as input as the cab service by hotel was a part of mixed and composite supply of its main supply.

5. works contract services when supplied for construction of immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

6. goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including such goods or services or both are used in course of furtherance of business;

*It is to be noted that the credit is blocked only for the construction of immovable property and not on the routine repairs to the immovable property.

7. Goods or services or both on which tax has been paid under Section 10.

Section 10 is for composition dealers and thus no input is allowed to composition dealers.

8. Goods or services or both received by a non resident taxable person except on goods imported by him

9. Goods or services or both used for personal consumption

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

This means that the registered person who supplies goods as samples or free supplies, no input will be allowed on purchase or manufacture of such goods.

11. Any tax paid in cases of: 

Section 74: provides for the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of fact;

Section 129: Detention, seizure and release of goods and conveyances in transit and the tax paid in this procedure;

Section 130:  Confiscation of goods or conveyances and levy of penalty.

(Author can be reached at caamitmaheshwari@gmail.com)

View Comments (19)

  • Respected Sir,

    Please solve our doubts,

    I have a company which is doing two business in one ranted place which rent is 3 lacs

    firstly a children's amusement which is under 18 % GST (with ITC)
    secondly a restaurant for birthday Parties of children's, under 5% GST (without ITC)

    i have a question that we take GST Registration in April 2018 but our Business work start from August -2018,

    We take per month full GST Input on Rent, but now we understand that our sale ratio is 70% (on Children's amusement) + 30% (on restaurant for birthday Parties )

    now we take the GST input 70% rest 30% under block credit due to restaurant 5% GST without ITC.
    what can we do previous input from April 2018 to Aug-2018 is it recoverable or ineligible.

    Please guide us

  • If we purchase taxable item i.e raw material from registered dealer but after manufacturing it converts to exempted. What can I do for GST ITC? that means it comes under section 42 or 17(5)

    • Yes, Kapil you may avail gst benefit on capital goods if you put these goods in production of goods,rendering of services or other asministrative purposes.

  • sir i have a petrol pump, and oil company , give invoice against license fees renewal for petrol and disel and take 28% percent GST on it, can i claim this itc on sale of other GST taxable item

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