In GST, the government stated a taxpayer can avail ITC of all those inputs of goods and services which are used for supply of goods and/or services is allowed under GST. But there is an exception list of items which are stated in section 17(5).So, for all professionals knowledge the items stated in section 17(5) is utmost important. As, tax authorities while doing assessment rejects taxpayers ITC by quoting the items stated in this section 17(5).
Mr. Jatin ask a question that If the items stated in section 17(5) are used in the business as input goods/input services or capital goods, then whether ITC is allowed ?
Answer is the items which are stated in the section 17(5) the ITC of such items not allowed even used in the course or furtherance of business.
We have heard about the negative list which covers mainly the items consumed for personal consumption, inputs and input services use of which results into formation of immovable property (except plant and machinery), telecommunication towers, pipelines laid outside the premises of the factory, etc and taxes paid as a result of detection of evasion of taxes.
Ex- Mr. Pal taken the input services of Mr. Sharma who is an architecture for his house. Mr. Sharma levied Gst on the invoice for the provided services. Here, input services received for personal consumption whose ITC not allowed.
Ex-Mr. Jain purchased a land for his factory. At the time of purchase he has paid gst on the services received from the valuer for the valuation of such land, here input services are received which results into the formation of immovable property. Important to note maximum taxpayers are taking this type of ITC due to the ignorance of the law.
Ex-Mr. Shah wants to buy machinery for his business of Rs 100 crore for which he approached the bank for finance and availed the services of valuer for the valuation of his land. Valuer levied gst on the services provided to Mr. Shah. Now, here Mr. Shah can avail the ITC on the services received from the valuer.
Ex-Mr. Ambani is constructing a telecommunication tower, he has paid gst on the input goods and services during its construction. Law does not allowed the ITC of this gst paid by Mr. Ambani. As telecommunication towers has been specifically excluded from the Plant and Machinery.
Ex- Mr. Das has bought pipes to be laid down in the pipelines outside the factory, GST paid on these pipes not allowed as pipeline outside the factory premises is not the part of plant and machinery.
Ex-Mr. Pyare has paid tax, as authorities found tax evasion done by him. Here the amount of tax paid here is not allowed to be claimed as ITC.
Now, let's discuss about the ITC on GST paid on Motor Vehicles and other conveyances and other related services (insurance, servicing and repair and maintenance).
For this we need to understand what is the meaning of motor vehicles defined by CGST Act.
- Two/Three wheelers with the engine of capacity of upto 25 CC (i.e Luna), bicycles are not motor vehicles. Law states a vehicle which has less than 4 tyers and whose engine capacity is upto 25 CC that vehicle is not a motor vehicle.
- Vehicle who is running on fixed rails not considered as Motor vehicle here. i.e Train, Trucks running fixed lains.
- Special purpose vehicles for being used in a factory or for any enclosed premises.
Law has blocked the ITC on the motor vehicle which is used for the transportation of persons whose sitting capacity is less than 13 persons (including driver). But if, such motor vehicle is used for the transportation of passengers, for further taxable supply as motor vehicle, making taxable supply of providing training of driving by such motor vehicle. Then ITC is allowed on this motor vehicle.
Ex- XYZ Ltd has bought a new car Innova which has a sitting capacity of less than 13 persons for office purposes. ITC on the gst paid for this car is not allowed as per law.
Ex- ABC passenger ltd bought new car Innova for the transportation of passengers. Then ITC is allowed on this.
Ex- Sandhu Motors bought car for KIA India and sold this car as they are making taxable supply of motor vehicle. Then ITC is allowed of gst paid on purchase of motor vehicle from KIA India.
Ex-Mr. Sid is an instructor of driving school. He bought new car Innova for giving training of driving , here ITC is allowed of GST paid on the motor vehicle.
If ITC on motor vehicle is not allowed for taxpayer then ITC on related services is also not available for him and vice-versa.
Vessels and Aircrafts are considered as motor vehicles but ITC is blocked on it but if they are used for the further taxable supply of vessel and/or aircraft, then ITC is allowed. Even if such vessel and/or aircraft is used for the transportation of passengers/goods, even then ITC is allowed. When such vessels are used for imparting training on navigating such vessel and such aircraft is used for imparting training of flying such aircrafts then ITC is allowed.
ITC on food and beverages, outdoor catering, health services and other services are also blocked.
Ex- ABC ltd purchased food and beverage for its customers during a meeting at FOC, then ITC on this is not allowed as law considers him final consumer. Casually a question comes that if we will charge our customer then is ITC allowed or not? Please understand how you can charge your customer as you cannot provide invoice as you do not have registration NOC code for such supply.
But law states if such above stated goods and/or services are used in further taxable supply as composite or mixed supply and if such goods and/or services are provided by the employers to the employee under statutory obligation then ITC is allowed.
Ex- Riya importers ltd organised an event for its business partners in which they given catering contract to Mr. Heera. Here ITC on the gst paid to Mr. Heera is not allowed. As law consider this consumption as final consumption so ITC not allowed.
But law provides an exception that if such catering services received by a person doing business of catering services then ITC is allowed.
Ex- Mr. Aman got a contract of catering in the function organized by Jio exporters. Mr. Aman gives sub-contract of supplying cold drink in the function to Mr. Prem. Then Gst paid to Mr. Prem is allowed as ITC to be claimed by Mr. Aman.
Company hired a catering person to provide food services in his company for his employees which is statutory obligation of employer under The Factories Act,1948 here ITC is allowed on payment made to the catering person.
Any GST paid on the membership of club, health and fitness centre is not allowed.But Law provides an exception that when employer pays for the membership of club, health and fitness centre for employee under any statutory obligation then ITC is allowed in such case.
Similarly any travel benefits extended to employees on vacation such as leave or home travel concession, ITC is also blocked in such cases if such benefit is provided by employer to employee under any statutory obligation.
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