Cases where Input Tax Credit under GST cannot be availed- Blocked credit under GST

GST has been introduced in India with an objective of providing free flow of taxes and eliminating cascading (double taxation) effect in various indirect taxes and simplifying the tax structure. Input Tax Credit (ITC) is the one of the most important reasons for introducing GST  in India. But ITC is not available in every case. ITC shall not be available in respect of goods or services which have been procured for non-business purposes or for the purpose of making exempt supply.
Further section 17(5) places certain restrictions in case of specified transactions where ITC will not available. This is also termed as ‘Blocked Credit’. In this article, we will discuss the concept of ‘Blocked Credit’ and understand the cases where ITC can not be taken under GST.

According to section 17(5) of CGST Act, Input Tax Credit shall not be available in the following cases: -

(a) Motor Vehicles for transportation of persons having approved seating capacity of 13 persons or less including driver except: -

• When they are used for further supply of such vehicles or
• When they are used for transportation of passengers or
• When they are used for imparting training on driving on such vehicle

Read more: - ITC on motor vehicles under GST

(aa) Vessels and aircrafts except when they are used: -

1. For further supply of such vessels and aircrafts
2. For transportation of passengers or goods
3. Imparting training on navigating such vessels or flying such aircrafts

(ab) services of general insurance, servicing, repair and maintenance insofar as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa): -

Provided that the ITC in respect of such services shall be available: -

(i) Where the motor vehicles, vessels or aircraft are used for the purposes specified in clause (a) or clause (aa)
(ii) Where received by a taxable person engaged-

1. In the manufacture of such motor vehicles, vessels or aircraft; or
2. In the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

(b) Services of food & beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircrafts referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance

However, ITC in respect of above goods or services shall be allowed where inward supply of such goods or services is used for making an outward supply of the same category of goods or services or as an element of taxable composite or mixed supply.

Further, the ITC in respect of above goods or services shall be available where it is obligatory for an employer to provide to its employees under any law for the time being in force.

Read Further: - GST Implication on canteen facilities to employees
                          GST on recovery for third party canteen services from employees

(c) Membership of a club, health and fitness centre

(d) Travel benefits extended to employees on vacation such as leave or home travel concession

(e) Works Contract service when supplied for construction of an immovable property (other than plant & machinery) except where it is an input service for further supply of works contract service.

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

Explanation- For the purposes of clause (e) & (f), the expression ‘construction’ includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.

Explanation- For the purpose of this Chapter and Chapter VI, the expression “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-

1. Land, building or any other civil structure
2. Telecommunication towers and
3. Pipelines laid outside the factory premises”

Read Further: - ITC on work contract and construction services

(g) Goods or services or both on which GST has been paid under section 10 (Composition)

(h) Goods or services or both received by a non-resident taxable person except on goods imported by him

(i) Goods or services or both used for personal consumption

(j) Goods lost, stolen, destroyed, written off or disposed of by way of gifts or free samples

(k) Any tax paid in accordance with the provisions of section 74, 129 and 130

Note: -

• Section 74 of CGST Act, 2017 deals with tax paid on account of allegation of fraud, willful misstatement or suppression of facts.
• Section 129 of the Act deals with tax paid due to detention of goods in transit for violation of e-way bill provisions.
• Section 130 of the Act deals with penal provisions on account of confiscation of goods

ITC of goods or services purchased from a composition dealer

Section 17(5) of the CGST Act, 2017 restricts ITC in respect of tax paid towards purchase of goods or services from a supplier who is registered under composition levy. Therefore, if you are purchasing any goods or services from a composition dealer, please take care that no input is claimed of GST paid to him. Such tax paid by you will form part of purchase cost of goods or services purchased from such dealer.

ITC of goods or services used for personal consumption

If any goods or services are used for personal consumption of the proprietor/ partners/ directors, then no ITC shall be eligible in respect of such goods or services.