Section 17 of CGST Act
GST law has mentioned some of the cases where Input Tax Credit (ITC) is not available to the taxpayer. This article discusses the ineligibility of ITC with examples
1) Restriction of ITC up to Business Supplies
Section 17 (1) Where the goods or services or both are used by 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 business.
2) Restriction of ITC upto Taxable Supplies including Zero-rated Supply.
Section 17 (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act (CGST Act) or under the IGST Act and partly for effecting exempt supplies under the said Acts (CGST & IGST Act), the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
Mr A. Supplies his 60% Goods or Services @ 5%, 12%, 18%, 28%, and 15% goods and services @ 0% (which can be export of goods and services) 25% Exempted Supply of Goods or Services
Mr. A bought goods or services to provide his outward supplies of goods and services say for Rs. 1000000/- on which he paid GST @ 18% i.e Rs. 180000/-
Mr. A can claim out of Rs. 180000/- Input Credit as follows:
For 60% goods and services @ 5%, 12%, 18% 28% :-- 180000 X 60% = 108000
For 15% goods and services @ 0% :-- 180000 X 15% = 27000/-
For 25% exempted supplies:-- 180000 x 25% = 45000/-
3) Value of Exempt Supply shall include:
Section17 (3) The value of exempt supply under Sec 17(2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
Note: Para 5 Clause (b) of schedule II defines supply of services of construction of complex, building and civil structure.
An explanation to section 17(2) says that for the purposes of section 17(2) exempt supplies shall include supplies on which recipient is liable to pay tax on reverse charge basis under section 8(3).
4) Apportionment of credit and blocked credits.
Section17 (4) A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of sub-section (2), or avail of, every month, an amount equal to fifty percent of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse:
Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year:
Provided further that the restriction of fifty percent shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.
5) Apportionment of credit and blocked credits Section 17 (5)
Section 17(5)(a), (aa) [newly inserted subsection] and (ab) [newly inserted subsection] – Blocked credit on motor vehicles
Section 17 (5)(a) –– ITC Shall not be available in respect of 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 further supply of such motor vehicle; or transportation of passengers; or imparting training of driving.
This is to note, references of other types of vehicles are omitted, it means ITC can be claimed for other types of vehicle e.g trucks, forklift, dumpers and other special purpose vehicle
Section 17 (5)(aa) ITC Shall not be available on Vessels and aircraft except when they are used for making further supply of such vessels or aircraft; or transportation of passengers; or imparting training on navigating such vessels; or imparting training on flying such aircraft; for transportation of goods;
Section 17 (5)(ab) ITC shall not be available in case of purchase of general insurance services; or servicing; or repair and maintenance for motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):
Section 17 (5)(b) Other blocked credits
ITC on the following supply of goods or services cannot be availed unless it is obligatory for an employer to provide to its employees under any law for time being in force.—
food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft, life insurance, health insurance, membership of a club/health and fitness centre, travel benefits extended to employees on vacation such as leave or home travel concession etc.
Further ITC on renting or hiring of motor vehicles, vessels or aircraft is allowed when they are used for purposes specified in clause (a) or (aa).
Explanatory Note: ITC would be available where it is statutory obligation of an employer to provide such supplies to its employees under any law for the time being in force. E.g It may be factories Act for statutory canteen services where more than 250 employees working.
Section 17(5)(c) works contract services when supplied for construction of an immovable property (other than plant and machinery) ITC Cannot be availed. Except where it is an input service for further supply of works contract service; i.e engaged in similar line of business, then Full ITC can be claimed on these items
Section 17(5)(d) goods or services 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. ITC Cannot be availed. (It has no exception)
For the purposes of clauses (c) and (d) of Section 17(5), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
Also, ITC cannot be availed on the following:
Section 17(5)(e) goods or services or both on which tax has been paid under section 10; (Composition Scheme)
Section 17(5)(f) goods or services or both received by a non-resident taxable person except on goods imported by him;
Section 17(5)(g) goods or services or both used for personal consumption;
Section 17(5)(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
Section 17(5)(i) any tax paid in accordance with the provisions of sections 74, 129 and 130.
6) Apportionment of credit and blocked credits.
Section 17(6) The Government may prescribe the manner in which the credit referred to in sub-section (1) and (2) may be attributed.
Explanation.––For the purposes 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—
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.