Section 17(5) of CGST Act 2017 – Blocked Credit Under GST

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  • Last Updated on 27 July, 2021
Though one of the pillars of GST is a free flow of credits in order to eliminate cascading of taxes, the input tax credit is not available in respect of the certain inward supply of goods or services as per Section 17(5) of the CGST Act,2017. It is important to note here that clause (a) and (b) of Section 17(5) were substituted for clauses (a), (aa), (ab) and (b) by CGST (Amendment) Act, 2018 which has been made effective from 01-02-2019. 

Section 17(5) of CGST Act 2017 | GST Input Tax Credit

The updated provisions of Section 17(5) of the CGST Act, 2017 is tabulated below:

 Clause of Section 17(5)

 Blocked Credit

 When ITC is available and not blocked

 Remarks

 

 

 

 

(a), b(i)) & (ab)

Motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver) including leasing, renting or hiring thereof.

Services of general insurance, servicing, repair and maintenance of aforesaid motor vehicles

When such motor vehicles are used for              

 i) further supply of such vehicles 

or                             

ii) transportation of passengers   

or                        

iii) imparting training on driving of such motor vehicles.

 

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.

Earlier ITC was prohibited for all motor vehicles and now seating capacity criteria has been inserted in new clause. 

Further specific prohibition for ITC on services of general insurance, servicing, repair and maintenance of motor vehicles was not there in old clause and in new clause it has specifically been prohibited to avoid disputes in this regard. Although normally tax payers were not availing ITC on such services.

 

 

 

(aa) , b(i)) & (ab)

 Vessels and Aircraft including leasing, renting or hiring thereof. 

Services of general insurance, servicing, repair, and maintenance of aforesaid vessels and aircrafts.

 When such Vessels and Aircraft are used for                                 

i) further supply of such Vessels and Aircraft

or                             

ii) transportation of passengers

or                        

iii) imparting training on navigating/flying such vessels/aircraft.

iv) transportation of goods.

ITC would be admissible for leasing, renting or hiring of vessels or aircraft when such vessels or aircraft are used for above said purposes or where the recipient is engaged in the manufacture of such vessels or aircraft or in the supply of general insurance services in respect of such vessels or aircraft insured by him. 

Specific prohibition for ITC on services of general insurance, servicing, repair, and maintenance of vessels and aircraft was not there in the old clause, and in the new clause, it has specifically been prohibited to avoid disputes in this regard. Although normally taxpayers were not availing ITC on such services.

 

 

 

b(i)

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 the 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;

 

 

 

 

 

 

 

 

 

 

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.

 

b(ii)

 

membership of a club, health and fitness centre;

 

 

 

b(iii)

 

travel benefits extended to employees on vacation such as leave or home travel concession;

 

 

 

 

 

(c)

 

Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

 

 

 

 

 

The term “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

Further 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

 

 

 

(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.

 

 

 

 

(e)

 

Goods or services or both on which tax has been paid under section 10 i.e. Composition Scheme

 

 

 

 

It may noted here that under composition scheme the tax cannot be charged by supplier from the recipient and accordingly question ITC availment by recipient does not arise.

 

(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;

 

 

ITC is admissible only in respect of supplies taken for business purposes. Thus supplies received for personal purposes are blocked.

 

 

(h)

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

 

Such goods being not used for providing taxable supplies, the ITC thereon is blocked u/s 17(5).

 

 

(i)

 

Any tax paid in accordance with the provisions of sections 74 (Tax not / short paid due to fraud etc), 129 (Detention, seizure, and release of goods and conveyance in transit), and 130 (confiscation of goods or conveyance and levy of penalty).

 

 

 

 

As in such cases tax was not paid with an intention to evade tax the ITC thereon has been prohibited in order to penalize such assessees.

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