What are various situations where Input Tax Credits not allowed in GST 2


In GST, every tax paid on purchases of goods or services or both for the furtherance of business are allowed as Input Tax Credit. However, there are some purchases which are specified under law for which such input tax credits (ITC) not allowed. ITC of such purchases are called “Blocked Credits”. Section 17(5) of CGST Act, 2017 prescribes the nature of expenses for which credits are blocked under GST.

In respect of following purchases, input tax credits are not allowed in any case, except specifically provided herewith:-

(a)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From 01.07.2017 to 31.01.2019

ITC in respect of Motor vehicles and other conveyance when used in the normal course of business.

However, ITC will be available in respect of such purchases when they used :

 (i) for making the following taxable supplies, namely:—

(a) further supply of such vehicles or conveyances ; or

(b) transportation of passengers; or

(c) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) for transportation of goods

w.e.f. 01.02.2019

W.E.F. 1st February, 2019, clause (a) of Section 17(5) of CGST Act, 2017 amended along with insertion of new clauses (aa) and (ab)

(a) 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;


(aa) 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;


(ab) 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):

Provided that the input tax credit in respect of such services shall be available-

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

(ii) where received by a taxable person engaged:-

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

Clause (b) : – W.e.f. 01 July 2017 to 31 January 2019
(b) ITC not allowed on inward supply of following  goods or services or both :

(i)

 

 

 

 

 

 

·         Food and beverages

·         Outdoor catering

·         Beauty treatment

·         Health services

·         Cosmetic and plastic surgery

However, if above-referred supplies used as inward supply 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, then ITC will be allowed.

(ii)

 

 

Membership of:

·         A Club

·         Health and Fitness Centre

(iii)

 

 

 

 

 

 

 

 

In general, ITC not allowed for following services :

·         Rent-a-cab service

·         Life Insurance service

·         Health Insurance service

However, ITC will be allowed if these services are taken because of following reasons:

    • Where government has made it obligatory for an employer to provide its employees under any law; or
    • Where such inward supplies used for making an outward taxable supply of the same category of supplies or as a part of mixed supply.
(iv) Travel benefits extended to its employees on vacation such as leave or home travel concession

W.E.F. 01 February 2019, clause (b) has been amended as follows:-

(b) the following supply of goods or services or both shall not be allowed-

(i) ITC not allowed for expenses incurred in respect of :-

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:

Provided that the input tax credit in respect of such goods or services or both shall be available 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 or as an element of a taxable composite or mixed supply;

(ii) membership of a club, health and fitness centre; and

(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

It is further provided that the input tax credit in respect of such goods or services or both {as enumerated in point (i), (ii) and (iii)} shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.


(c)

 

 

 

 

Works Contract services when supplied for construction of an immovable property (other than plant and machinery)

However, ITC will be allowed where such services are taken as Input service for further supply of work contract service.

“Construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.

It means where work contract services are taken for repairs and maintenance of revenue nature, ITC will be allowed to every person.

(d)

 

 

 

 

 

 

 

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

“Construction” includes re-construction, 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 support that are used for making outward supply of goods or services or both and includes such foundation and structural supports, but excludes :-

  • Land, Building or any other civil structures;
  • Telecommunication towers; and
  • Pipelines laid outside the factory premises

(It means ITC not allowed for such excluded supplies)

(e)

 

Goods or services or both procured on which tax paid under provisions of Composition Levy

(i.e. where supplier is registered as dealer under Composition Levy)

(f)

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

Goods or services or both used for personal consumption

(h)

goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples

(i)

 

 

 

 

Any tax paid:
  • Under section 74 (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 willful-misstatement or suppression of facts)
  • Under section 129 (Detention, seizure and release of goods and conveyances in transit)
  • Under section 130 (Confiscation of goods or conveyances and levy of penalty)

Provisions provided in CGST law in respect of restricted input tax credits (as discussed above) are mutatis mutandis applicable under SGST Act, UTGST Act and in IGST Act.

 


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2 thoughts on “What are various situations where Input Tax Credits not allowed in GST

  • BHARATH ROADWAYS. VAPI . GUJARATH

    SIR WE ARE BROKER/SUPPLIER OF TRUCKS TO TRANSPORTER. OUR TRANSACTION EXCEEDS ABOVE20 LAKHS.WHAT IS OUR POSITION IN GST

    • admin Post author

      You are exempt from registration in GST because exemption is provided in GST for providing hiring service of vehicles to transporters.