Cases Where Input Tax Credit under GST Cannot Be Availed
Blocked Credit [Section 17(5)]:- Input tax credit shall not be available in respect of the following, as per section 17(5) of GST Act.
1. Motor vehicles and other conveyances
Motor vehicles and other conveyances are not eligible for ITC except when they are used––
(i) for making the following taxable supplies, namely—
(A) further supply of such vehicles or conveyances
(B) transportation of passengers
(C) imparting training on driving, flying, navigating such vehicles or conveyances
(ii) for transportation of goods
Example (further supply of such vehicles or conveyances)
M/s A Ltd. a registered person under GST law and purchased 10 cars for Rs.45 lakh plus 28% GST. M/s A Ltd sold 8 cars for Rs. 55 Lakh plus28% GST.
Find the GST liability in the following two independent cases:
(a) M/s A Ltd is a dealer of motor vehicles
(b) M/s A Ltd is not a dealer of motor vehicles
Solution:- (a) (55 lakh x28%)-(45 lakh x 28%) = 2.80 lakh
(b) (55 lakh x28%)-ITC not Allowed = 15.40 lakh
Example (transportation of passengers)
M/s MR Ltd. manufacturer of motor vehicles. Company purchased passenger motor vehicle for Rs.20 lacs plus GST 28% for transportation of their employees from their residence to factory and from factory to their residence. M/s
MR Ltd. is eligible to avail the credit on purchase motor vehicle?
No. M/s MR Ltd. is not in the business of transporting passengers and hence credit on purchase of motor vehicle is not allowed.
Note: If the taxable person transports its own employees free of cost it will not be covered by the aforesaid clause and hence he will not be able to claim benefit of input tax credit in respect of the same.
Let us look at another scenario. Mukesh Travels, a tour operator, purchased a Tempo Traveler for the purpose of transporting tourists during their package tours. Here, Mukesh Travels can avail ITC on the Tempo Traveler, as it is used for transporting passengers – a business activity for Mukesh Travels.
Example (imparting training on driving, flying, navigating such vehicles or conveyances)
M/s Maruti Driving School Pvt. Ltd. supplied taxable services in the month of October 2017 for Rs.15 lacs (plus GST 18%) to provide training on driving. Company purchased two vehicles for this purpose namely passenger vehicle for Rs. 20 lacs plus GST 28% and goods vehicle for Rs. 33 lacs plus GST 28%. Find the net GST liability of M/s
Maruti Driving School Pvt. Ltd.
Answer :- Net Excess ITC 2,70,000-560000-924000=1214000
Example: A car dealer is allowed ITC on cars purchased for resale; a cab service is allowed ITC on cars purchased for use as cabs; a driving school is allowed ITC on cars purchased for use in teaching driving.
Example: Course completion certificate/training offered M/s Sky Ltd. (Flying Training Institute) purchased aircraft for Rs. 22 crores plus GST 28%. Whether the flying institute is eligible for input tax credit on purchase of air craft.
Answer: Yes. M/s Sky Ltd. (Flying Training Institute) is eligible to avail ITC.
Analysis on Motor Vehicle for transportation of goods
Credit of GST paid on motor vehicle and other conveyance will be available when motor vehicle and other conveyance are used for transportation of goods. The motor vehicle and other conveyance can be used for
(a) making outward supply of transportation of goods;
(b) transporting own goods.
Note: if the vehicle is used for supplying own goods if those goods are taxable supplies the taxable person will be entitled to avail credit of such input tax paid on such vehicle.
2.Goods and services for food, beauty treatment, health mainly for personal consumption
Following supply of goods and services or both are not eligible for input tax credit
(i) Food and beverages,
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
ü for making an outward taxable supply of the same category of goods or services or both or
ü as an element of a taxable composite or mixed supply;
Example 1: Super Cars Pvt Ltd take the services of a caterer, Rakesh Caterers, for Diwali Celebration event for its employees. Super Cars Pvt Ltd cannot avail ITC on the catering service, as their business activity is not catering service.
Example 2: Guideline Academy organizes parents meeting and provides meal during meeting to students and their parents. The supplier of food charged Rs. 72,500 plus GST 18%, under the category of outdoor catering. Explain Guideline Academy being provider of taxable supply of services namely commercial training and coaching services is eligible to avail the credit of GST paid on outdoor catering service.
GST paid on outdoor catering is not allowed as ITC even though such services are used for business purpose. Since, it is specifically mentioned under Section 17(5)(b)(i) of the CGST Act, 2017 where credit is not allowed.
Example 3: Annapoorna caterings supply outdoor catering services to its customers by sub-contracting the same. Subcontractor supplied food items like ice creams, North Indian Meals, South Indian Meals and so on to Annapoorna caterings. Sub-contractor raised invoice on Annapoorna caterings for supply of outdoor catering services Rs. 2,00,000 plus GST 18%. Annopoorna caterings supplied outdoor catering to its customers for Rs. 2,10,000 plus GST 18%. Find the Net GST liability of Annapoorna caterings.
Statement showing net GST liability of Annapoorna caterings:
GST on outward supply (210000×18%) = 37,800
Less: ITC from similar line of business(200000×18%) = 36,000
Net GST liability =1800
Example 4: Sky Ltd. is engaged in supply of transport of passengers by air services. The company avails outdoor catering services of M/s Anna Caterers in order to provide food and beverages to the passengers. M/s Anna Caterers raises an invoice on Sky Ltd charging GST.
Sky Ltd. wants to avail the ITC on outdoor catering services supplied by M/s Anna Caterers. Advise.
ITC shall be available where an inward supply of goods or services or both of a particular category is used by a registered person as an element of a taxable composite or mixed supply.
Advise: In the given case, Sky Ltd will be entitled to avail the ITC of the GST paid to M/s Anna Caterers since outdoor catering services forms part of taxable composite supply of passengers by air services.
(ii) membership of a club, health and fitness centre,
Example: if you have taken any subscription of the gym, yoga classes, or membership of any club for any sport or for anything else, the ITC credit shall not be allowed.
Example: Mukesh Travels, a tour operator, takes an annual membership of a fitness centre, Pratham Fitness Centre, for the use of its employees. Here, Mukesh Travels cannot avail ITC on the GST paid on membership charges.
(iii) 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;
Example: Wipro Pro Ltd is a BPO which works on night shift basis. As per the Government Notification, it has to provide rent a cab facilities to its employees who work on night shifts.
Whether, Wipro Pro is eligible to avail ITC on rent a cab services.
Yes. Wipro pro Ltd can claim ITC on the GST paid on such rent-a-cab services.
Example: Hotel King Pvt Ltd. provider of short-term accommodation services and also provides picking up guest from airport. Accordingly, Hotel King Pvt. Ltd availed rent-a-cab services from M/s X & Co.
Rent-a-cab services provided by M/s X & Co to Hotel King Pvt Ltd. during Nov 2017 for Rs. 2,00,000 plus GST 18%.
Hotel King Pvt Ltd. provided short-term accommodation services to its customers (i.e. guests) during Nov 2017 for Rs. 15,75,250 plus GST 18%.
Find the Net GST liability of Hotel King Pvt Ltd. during the month of November 2017.
Statement showing Net GST liability of Hotel King Pvt. Ltd for the month of Nov 2017
GST on outward supplies (15,75,250 x 18%) = 2,83,545
Less: ITC on rent-a-cab service (2,00,000 x 18%) = (36,000)
Net GST liability = 2,47,545
Note: In the given case Hotel King Pvt. Ltd. providing a composite supply of rent-a-cab and accommodation service. The principal supply of service is accommodation service. Hence, GST paid on rent-a-cab will be available as a credit to Hotel King Pvt. Ltd.
Example: Infosys Ltd. being a registered person under GST Law paid insurance premium for its employees along with GST thereon. Infosys Ltd. is can avail the ITC of GST paid on insurance premium?
No. Infosys Ltd cannot avail the ITC benefit in the given case.
Example:- M/s MRFL Ltd. being a manufacturer of taxable goods paid general insurance premium to cover loss of stock of finished goods. Company wants to avail the GST paid on such premium as input tax credit. Advise.
GST paid on general insurance premium to cover loss of stock of finished goods is well allowed as input tax credit. Hence, M/s MRFL Ltd. is eligible to avail the tax paid on general insurance premium as ITC.
(iv) travel benefits extended to employees on vacation such as leave or home travel concession.
Example: Super Cars Pvt Ltd reimburses its senior employees on travel expenses as part of LTA (Leave Travel Allowance). Super Cars Pvt Ltd cannot avail ITC on the GST component of the travel fare reimbursed. This restriction is absolute and no exception has been provided.
3. Works contract services
Works contract services for construction of an immovable property is not eligible,
ü It is input service for further supply of works contract service
ü Immovable property is plant and machinery
4. Construction of an immovable property
Inward supplies received by a taxable person for construction of an immovable property on his own account is not eligible, even when such supplies are used in the course or furtherance of business
ü Construction of Plant & Machinery
ü Construction of immovable property for Others.
Example – A company buys material and hires a contractor to construct an office building to house the plant supervisory staff. The input tax paid on such goods and services is not allowed as credit.
Meaning of construction and plant and machinery
“Construction”, both in this clause and the previous one, includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;
“Plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural supports but excludes land, building or other civil structures, telecommunication towers, and pipelines laid outside the factory premises.
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.
Example: Laxmi Kirana Stores is registered as a composition tax payer under GST. It purchases grocery items from the manufacturer for Rs.20,000 and GST is charged @ 12% amounting to Rs.2,400. As Laxmi Kirana Stores is registered as a composition tax payer, it cannot avail ITC of Rs.2,400 on the purchase. This GST paid will become part of their material cost
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
Example:- Mr. A of USA being technician came to India to assemble parts of machinery. He also imported goods worth Rs.10,00,000 and paid following customs duties:
(i) Basic customs duty is Rs. 1,00,000.
(ii) Education Cess 2% plus 1% Secondary and Higher Education Cess together it is Rs. 3,000.
(iii) Integrated Goods and Services Tax (IGST) of Rs. 1,98,540.
In India Mr. A wants to register as non-resident taxable person and his estimated liability is Rs. 2,50,000. How much Mr. A is liable to pay as advance tax?
Mr. A of USA is liable to pay advance tax of Rs. 51,460. (i.e. Rs. 2,50,000 – 1,98,540)
7. Goods and services used for personal consumption
Goods or services or both used for personal consumption are not eligible for input tax credit
Example:- M/s X Ltd. purchased shoes for their employee’s personal consumption by paying GST thereon. ITC not allowed on such goods.
Example:- M/s Y Ltd. for safety reasons purchased hand gloves and shoes for workers as mandatory. Hence, ITC on such goods cannot be considered as used for personal purpose. Therefore, ITC allowed.
Example: Rajesh Apparel Pvt Ltd purchased apparel for Rs.50,000 from the manufacturer. GST paid on the purchase is Rs.9,000. Out of the apparel purchased, apparel worth Rs.2,000 is taken by the owner for his personal use. The remaining apparel are sold to customers. Here, the ITC to be availed on the purchase is Rs.8,640 (48,000 *18%).
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
Example: You are an electronic goods dealer. On 1st Nov, 2017, you purchase 20 computers @ Rs. 25,000 each from the manufacturer. GST charged is Rs.90,000 (@18%). On 2nd Nov, 2017, 1 of the computers gets destroyed completely and cannot be used any more. You cannot avail the ITC on that computer, i.e., Rs. 4,500.
9. GST paid after detection of fraud or suppression or goods removed in contravention of GST Act
Any tax paid under 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
Example: – M/s X Ltd. sold goods to M/s Y Ltd. for Rs. 2,00,000 plus GST Rs. 36,000. M/s X Ltd. remitted the GST on or before the due date. During the audit of M/s X Ltd. books by the Central Tax Department quantified the GST liability Rs. 72,000 and demanded to pay differential duty of Rs. 36,000 u/s 74 of the CGST Act, 2017. Finally, M/s X Ltd. paid the differential GST of Rs. 36,000.
M/s Y Ltd. wants to avail the input tax credit of differential amount of GST, advise.
Since, the differential GST paid by M/s X Ltd. against show cause notice u/s 74 of the CGST Act, 2017, will not be available as credit to M/s Y Ltd. in view of clause (i) of section 17(5) of the CGST Act, 2017.