Introduction:-
Though the idea behind implementation of GST is free flow of tax credit, input tax credit is not available in respect of certain inward supply of goods or services as per Section 17(5) of the CGST Act, 2017.
{Sec.17 (5)} Cases where ITC is not available:-
1. Motor Vehicles and Conveyances
- ITC is not available for Motor vehicles used to transport persons, having a seating capacity of less than or equal to 13 persons (including the driver) including leasing, renting or hiring thereof.
- Services of general insurance, servicing, repair and maintenance of aforesaid motor vehicles.
Ex: - ABC & Co. buys a car for their business then, they cannot claim ITC on the same.
Exceptions to ITC on Motor Vehicles and Conveyances:-
ITC will be available when the vehicle is used for making taxable supplies by the following:-
1. Further Supply of such vehicles or conveyances, vessels or aircrafts [i.e. if you are in the business of supplying cars then ITC will be available].
Ex: - Car dealer purchases a car for Rs.10 lakh plus 4 lakh GST and the same car was later sold for 15 lakhs along with Rs.5.60 lakh GST. Since he is a dealer, he can claim ITC of 4 lakhs and pay only Rs.1.60 lakh (5.60 – 4).
2. Transportation of passengers [i.e. if you are providing transportation of passengers then ITC will be allowed on the vehicle purchased].
Ex: - M/s. ABC Tours purchased a bus for inter-city transport of passengers, then ITC is available.
3. Imparting training on driving, flying, navigating such vehicle or conveyances or vessels or aircrafts, respectively.
Ex: - M/s. ABC Driving School purchases a car to give training to students, then the school can claim ITC on the GST paid on the purchase of car.
ITC would further be admissible for leasing, renting or hiring of motor vehicles when such motor vehicles are used for above said purposes or where the recipient is engaged in the manufacture of such motor vehicles or in the supply of general insurance services in respect of such motor vehicles insured by him.
2. Vessels and Aircraft
- Including leasing, renting or hiring thereof.
- Services of general insurance, Servicing, Repair and maintenance of aforesaid vessels and aircrafts.
Exceptions to ITC on Vessels and Aircraft:-
When such Vessels and Aircraft are used for:
- Further supply of such Vessels and Aircraft or
- Transportation of passengers or
- Imparting training on navigating / flying such vessels / aircraft.
- Transportation of goods [However Good Transport Agencies are not bought under this purview].
3. Supply of food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, life insurance and health insurance:-
ITC would be available when 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 an element of a taxable composite or mixed supply;
Ex: - Vijay Enterprises arranges for an office party for its employees. Vijay Enterprises will not be able to claim ITC on the food & beverages served.
And for the same party to get arranged, Vijay Enterprises has entered into agreement with M/s. Parajay Catering Services P Ltd for supply of Food & beverages, whereas the Parajay Enterprises has entered into a sub contract with M/s.Digvijay Catering Services for special desserts, then the Parajay Catering services can claim the input of the taxes paid to M/s.Digvijay Catering Services for the desserts provided.
4. Membership of a club, health and fitness center and travel benefits extended to employees on vacation such as leave or home travel concession:-
Exception:-
1. ITC would be admissible where it is obligatory for an employer to provide such supplies to its employees under any law for the time being in force.
Ex: - Mr.X, a Managing Director has taken membership of a club and the company pays the membership fees, then ITC will not be available to the company or Mr. X.
Ex: - Assuming the government passes a rule for all employers to provide mandatory cab services to female staff in night shifts. ABC Ltd. hires a rent-a-cab to provide to transportation to its female staff on night shifts. Then ITC will be available to ABC Ltd. on the GST paid to the rent-a-cab service.
Ex: - ABC Ltd. offers a travel package to its employees for personal holidays. ITC on GST paid by ABC Ltd. for the holiday package will not be allowed.
2. If the category is same for the inward supply and outward supply or it is a part of the mixed or composite supply
Ex: - ABC Travels lends out a car to XYZ Travels. Then XYZ Travels can claim ITC on the same.
5. Works contract services when supplied for construction[1] of an immovable property (other than plant and machinery[2] ) except where it is an input service for further supply of works contract service:-
ITC shall not be available for any work contract services. ITC for the construction of immovable property cannot be availed, except where the input service is used for further work contract services.
Ex: - M/s. ABC Contractors are constructing an immovable property. They cannot claim any ITC on the works contract. However, ABC hires DEF Contractors for a portion of the works contract. ABC can claim ITC on the GST charged by DEF Contractors.
6. 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:-
No ITC is available for good or services for construction of an immovable property on his own account. Even if such goods or services are used in the course or furtherance of business, ITC will not be available.
But this rule does not apply to plant or machinery. ITC is available on inputs used to manufacture plant and machinery for own use.
Ex: - i. Ajay Steel Industries constructs an office building for its headquarters. ITC will not be available.
ii. Ajay Steel Industries also constructs a blast furnace to manufacture steel. ITC is available since it is a plant.
7. Composition Scheme Sec.10 of CGST Act, 2017:-
No ITC would be available to the person who has made the payment of tax under the composition scheme in GST law.
8. Goods or services or both received by a Non-Resident Taxable Person:-
ITC cannot be availed on Services received by a non-resident taxable person.
Exception:- ITC is available on any goods imported by him.
9. No ITC for personal use
ITC will not be available for the goods and services used for personal purpose.
Thus supplies received for Personal purposes are Blocked.
10. Goods lost, Stolen, Destroyed, written off or disposed of by way of gifts or free samples:-
Such goods being not used for providing taxable supplies, the ITC thereon is blocked u/s 17(5).
11. Any tax paid in accordance with the provisions of sections 74, 129 and 130:-
In such cases tax was not paid with intention to evade tax the ITC thereon has been prohibited in order to penalize such assesses.
[1] Construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.
[2] 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
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