Sec 17: Blocked Credit under GST

Since the Inception of GST, there has been a lot of talk regarding mechanism of Credit Input Tax paid on Inter-state & intra-state Purchase of Goods/Service vis-a-vis flow of Input Tax Credit.

In this Article we are basically covering Sec 17 & no other Section related to Input Tax Credit

So let, first understand what is 'Input Tax' & 'Input Tax Credit'

Input Tax - Sec 2(62)

So Section 2(62) deals with Definition of Input Tax which reads as -

"input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—

the integrated goods and services tax charged on import of goods;

the tax payable under the provisions of sub-sections (3) and (4) of section 9;

the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;

the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or

the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act,

but does not include the tax paid under the composition levy;

So will try to decode the Section for better understanding.

Input Tax is Tax (CGST/SGST/IGST/UTGST) Paid by Registered Person on Purchase of Goods & Services made by the Registered Person.

An Input Tax Includes -

• IGST Paid on Import of Goods
• Tax Paid under Reverse Charge Mechanism under CGST Act (Advocate Fees, GTA Etc.)
• Tax Paid under Reverse Charge Mechanism under SGST Act (Advocate Fees, GTA Etc.)
• Tax Paid under Reverse Charge Mechanism under ISGT Act (Import of Service, GTA Etc)
• Tax Paid under Reverse Charge Mechanism under UTGST Act (Advocate Fees, GTA Etc.)

*BUT TAX PAID ON PURCHASES FROM COMPOSITION SUPPLIER IS NOT ELIGIBLE INPUT TAX*

NOTE - from the Section, we can interpret that only REGISTERED PERSON can Claim Input Tax.

Input Tax Credit - Sec 2(63)

So definition of Input Tax Credit (ITC) is simple & section reads as -

"input tax credit" means the credit of input tax;

So in simple terms, credit can be construed as Set-off of Tax Paid on Purchases as defined under Sec 2(62) which can be adjusted against GST output liability.

So we have understood 2 important terms to deal with Section 17, now will go through the Main Section i.e. Sec 17generally termed as Blocked Credit or Ineligible ITC of this article clause by clause.

Let us jump to the Clause by Clause Analysis of Section 17.

Sec 17(1) - Purchases Of Goods/Services Which Are Used For Both Personal & Business Use

Registered Person is allowed to Claim ITC only to the Extent of the Goods/Services that are used for the Purpose of Business.

NOTE - Rule 42 & 43 of the Act deals with the calculation of Eligible & Ineligible ITC as per Sec 17(1)

Example- If Computer/Laptop is purchased and same is being used by Registered Person for Business as well as it is being used by some other person of his family or even himself for personal use, then is such cases Sec 17(1) will come into play

Sec 17 (2) - Purchases Of Goods/Services Which Are Used For Making Taxable & Exempt Supply

• Registered Person is allowed to Claim ITC only with respect to the Goods/Services that are used for making Taxable Supply (including Zero-rate supply).

NOTE - Rule 42 & 43 of the Act deals with the calculation of Eligible & Ineligible ITC as per Sec 17(2)

Example - If a Registered Person is a Builder and he has Properties that are sold after completion (Exempt Supply) & before completion (Taxable Supply). In such a case Sec. 17(2) will come into play.

Sec 17 (3) - Transactions To Considered For Exempt Supply u/s 17 (2)

Although Exempt supply is defined u/s 2(47), Sec 17(3) should be read with Explanation (2) of Rule 45 for the Purpose ITC Reversal following transactions are also to be considered -

• Tax Paid under RCM
• Transaction in securities
• Sale of Land & Building subject to clause (b) of Para 5 of Schedule II

NOTE -

• Exempt supply to include Supplies on which the recipient is liable to pay Tax under RCM i.e. for example if Goods Transport Agency has 2 businesses i.e. of GTA & other one being Leasing of Vehicles in such cases supplies done under GTA is to be considered as Exempt supply for the purpose of Sec 17(3) even though the tax on same is being payable by recipient under RCM.
• Items mentioned under Schedule III are not be considered as Exempt Supply since they are NOT SUPPLIES under the Act so they do not fit into the Category of Exempt or Non Taxable Supply

Sec 17 (4) - Ineligible ITC In Case Of Banking & Financial Institution Including NBFC

• Above mentioned Registered Person i.e. Banking & Financial Institution have 2 options to avail ITC i.e.
• Either Apportion ITC as per Rule 42 & 43 OR
• Avail 50% of eligible ITC every month while the rest shall lapse. This option once exercised cannot be withdrawn for the rest of the financial year. The 50% option cannot be availed when the supply is made to a person with the same PAN Account, ie branch to branch-to-branch transactions.

Sec 17(5)(a) - ITC On Motor Vehicle (Not Having A Seating Capacity Of More Than 13 People Including The Driver) For Transportation Of Persons

ITC on motor vehicles with seating capacity of maximum 13 persons including the driver used for transportation of persons cannot be claimed EXCEPT when used for

• Further Supply of Vehicle
• Transportation of Passenger
• Imparting Training of driving such vehicle

Sec 17(5) (aa) - ITC On Vessels And Aircraft

ITC on vessels and aircrafts for transportation of persons cannot be claimed EXCEPT when used for

• Further Supply of such vessels or aircraft
• Transportation of Passenger
• Imparting Training of navigating such vessels
• Imparting Training of flying such aircrafts
• For transportation of goods

Sec 17(5) (ab) - ITC On Services Of General Insurance , Servicing , Repair & Maintenance Of Motor Vehicle , Vessels & Aircraft Mentioned In Sec 17(5)(a) & (aa)

ITC on General Insurance, Servicing, Repair and Maintenance related to motor vehicles, vessels or aircrafts cannot be claimed EXCEPT when such services are used for

1. Allowable Supply of Goods & Services specified u/s 17(5) (a) & (aa)
2. Where received by Taxable Person engaged 

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

Sec 17 (5) (b) - ITC On Supply Of Goods & Services Both As Mentioned Below

• Foods & Beverages
• Outdoor Catering
• Beauty Treatment
• Health Services
• Cosmetic & Plastic Surgery
• Leasing, Renting or Hiring of motor vehicle, vessels or aircraft referred to (a) & (aa) except when used for purpose specified under the clause
• Life Insurance
• Health Insurance

(ITC on above supply of Goods & Services shall be available if such goods/services used by registered person for outward taxable supply of the same category of goods/services or as an element of mixed or composite supply)

• Membership of club, health & fitness centre
• Travel benefits extended to employees on vacation such leave or home travel concession

(ITC on such goods/services shall be where it is obligatory for the employer to provide to its employees under any law for the time being in force

Sec 17 (5) (c) - ITC On Works Contract Service Of Immovable Property (Other Than Plant & Machinery)

ITC on Works Contract service of immovable property is unavailable EXCEPT where such Works Contract service is a Input service for further supply of works contract service

Sec 17 (5) (d) - ITC On Goods/Services Or Both For Construction Service Of Immovable Property (Other Than Plant & Machinery) For Personal Use Or Even For In Course Of Business Or Furtherance Of Business Cannot Be Claimed

Sec 17(5)(e) ITC On Goods Or Services Or Both On Which Tax Has Been Paid Under Section 10

ITC is unavailable on goods or services or both on which GST is chargeable under the Composition Scheme.

Sec 17(5)(f) ITC On Goods Or Services Or Both Received By NRTP

ITC is blocked on Goods and services or both that are received by a Non-resident taxable person. ITC is available in the case of imported goods by NRTP.

Sec 17(5)(g) ITC On Goods Or Services Or Both Used For Personal Consumption Is Not Available.

Sec 17(5)(h) ITC On Goods Lost, Stolen, Destroyed, Written Off Or Disposed Of By Way Of Gift Or Free Samples

• ITC is not available in the case of goods lost, stolen, destroyed or written off. If ITC has already been availed, it should be reversed or added to output tax liability. Write-off of goods can be fully or partly.
• ITC on goods distributed by way of gifts or free samples is not available. If it has been taken, then the transaction is taken as Supply as per Para 1, Schedule 1 and Value is to be determined Rule 30. 

Sec 17(5)(i) ITC On Any Tax Paid Under Provisions Of Sections 74, 129 And 130

ITC is not available on the tax paid due to:

• Sec 74-Misstatement or Suppression of fact
• Sec 129-detention or seizure of goods in transit
• Sec 130-confiscation of goods

Sec 17 (6) - Government May Prescribe Manner In Which ITC May Be Attributed u/s 17 (1) & (2)