9/17/21, 11:09 AM Blocked Credits Under GST‐ Section 17(5) of CGST ACT, 2017

Blocked Credits Under GST‐ Section 17(5) of CGST

ACT, 2017
taxguru.in/goods-and-service-tax/blocked-credits-gst-section-175-cgst-act-2017.html

We have once dreamed that there should be one tax for one nation and
implementation of GST Act,2017 from 1st July,2017 has fulfilled our dream. GST has
implemented whole of India and number indirect and direct taxes have been submerged
into GST. In earlier tax regime ,there were cascading affect of taxes and each sate
government has their own rules and regulations to tax transactions in their states. After
implementation of GST all other difficulties have been removed and there are fours
components under GST Laws in India;

1. Central Goods and Services Tax (CGST) [also known as Central Tax] which is levied
on intra-state or intra-union territory on supply of goods or services or both;

2. State Goods and Services Tax (SGST) [also known as State Tax] which is levied on
supply of goods or services or both within the same state;

3. Union Territory Goods and Services Tax(UTGST) [also known as Union Territory
Tax] which is levied on supply of goods or services within the same union territory;

4. Integrated Goods & Services Tax (IGST) [also known as Integrated Tax) on inter-
state supply of goods or services of both.

The most important  part of GST ACT,2017 is availability set off facility of tax paid on
eligible  inputs against taxes to be paid on output supply of goods and services.

But there are restrictions on some transactions of sale and purchase of goods or
provisions of services on which input tax paid is not allowed to be set off against
outstanding tax liability of taxable persons.

Input Tax Credit means claiming the credit of the GST paid on purchase of Goods and
Services which are used for the furtherance of business. The Mechanism of Input Tax
Credit is the backbone of GST and is one of the most important reasons for the
introduction of GST.

As GST is a single tax levied across India (right from manufacture of goods/ services till it
reaches the end customer), the chain does not get broken and everybody is able to take
benefit of the same and there is seamless flow of credit.

Input Tax Credit: Input Tax Credit means the tax paid by the Registered Recipient of
goods or services in the form of Central Tax (CGST), State Tax (SGST) or Union Territory
Tax (UTGST) & Integrated Tax (IGST). Such tax is charged by the Registered Supplier at
the time of sale of goods or services made to any Registered Recipient. It means this
concept is applicable only for the buyer of goods or the recipient of services who has
taken the GST registration.

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ITC also includes: –

(a) the GST paid on reverse charge basis by the registered recipient of supply on
certain specified goods or services such as GTA, Advocate services etc.

(b) IGST paid on import of goods.

NOTE;  from above it is clear that only registered person including  Input Service
Distributor ,under GST can claim input tax credit ,paid by him on purchases used as
inputs in furtherance of business of the buyer.

THERE ARE SOME GOODS & SERVICES TAXES (GST), YOU CAN’T CLAIM EVEN
THOUGH YOU HAVE ALREADY PAID FOR IT WHEN YOU MADE YOUR
PURCHASES OR EXPENSES. THOSE GST YOU CAN’T CLAIM IS CALLED
BLOCKED INPUT TAX CREDIT.

SECTION 17(5) OF THE GOODS AND SERVICE TAX ACT,2017 DEALS WITH
BLOCKED WITH INPUT TAX CREDIT;

Refer to the detailed provisions relating to Blocked credit as under:

1) Meaning-

As per the proviso, A registered person is not eligible to take input credits on GST paid on
goods and services received by him under Section 17 (5) of CGST Act. 

BLOCKED CREDIT UNDER SECTION 17(5):

I. SECTION 17(5)(a):

(1) Motor Vehicle for transportation of person having approved seating capacity of
not more than 13 persons(including driver of vehicle).

Except when used for:

1. Further Supply of Vehicles

2. Transportation of passenger (transport Agency)

3. For Training Classes

(2) Vessels and Aircraft

Except when used for:

1. Further Supply

2. Transportation of passengers

3. Imparting training on navigating such vessels

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4. Imparting training on Flying such aircraft

5. Transportation of Goods

NOTE THAT ;

i) 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.

ii) 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.

 iii) The above notes i) & ii) are applicable to vessels also.

II. SECTION 17(5)(b) :

(i) Foods & beverages, outdoor catering, beauty treatment , health insurance,
cosmetic & plastic surgery.

 Except it is used for:

Making outward taxable supply of the same category of services or an element of mixed
or composite supply.

NOTE:

i) 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.

(ii)Membership of a club, health and fitness Centre (No exception) (4)Rent a Cab ,
Life Insurance , Health Insurance except;

i)Where it is made obligatory by Government

ii)It is used for making outward taxable supply of the same category of services or an
element of mixed or composite supply.

NOTE:

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9/17/21, 11:09 AM Blocked Credits Under GST‐ Section 17(5) of CGST ACT, 2017

i) 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.

(iii) Travel Benefits to Employees;

Provided that the Input Tax Credit in respect of such goods or services or both shall be
available, where it is obligatory for an employer to provide the same to its employees
under any law for the time being in force

III.  SECTION 17(5)(c);

Works Contract Service when supplied for construction of immovable property(not

plant & machinery) except:

Where it is an input service for further supply of Works Contracts;

NOTE:

a) The term “construction” includes re-construction, renovation, additions or alterations

or repairs, to the extent of capitalisation, to the said immovable property;

b)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

III. SECTION 17(5)(d);

Goods & Services received for construction of immovable property (not plant &
machinery) on his own account including when such Goods/services are used in
Business. (Construction includes re‐ construction, renovation, additions or
alteration or repairs to the extent of capitalization ,to the said immovable property);

NOTE:

a)The term “construction” includes re-construction, renovation, additions or alterations

or repairs, to the extent of capitalisation, to the said immovable property;

b)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;

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9/17/21, 11:09 AM Blocked Credits Under GST‐ Section 17(5) of CGST ACT, 2017

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises

IV. SECTION 17(5)( e);

Person who made the payment of tax under Composition ( Section 10 of the GST
Act, 2017) ;

NOTE:

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.

V. SECTION 17(5)(g);

ITC cannot be availed on goods/service received by non‐resident taxable person

except; Only Goods imported by him (10)Personal Use.

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

VII.  SECTION 17(5)(h);

Goods lost, stolen, destroyed, written off or given off as gift or free sample;

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

VIII. SECTION 17(5)(I);

Any tax paid due to fraud cases which has resulted into –

i)Tax paid under Section 74 – tax not paid /short paid due to fraud;

ii)Tax paid under Section 129- tax paid on detention and release of goods and
conveyance in transit;

iii)Tax paid under section 130-tax paid on confistation of goods or conveyance and
levied of penalty thereof.

 NEW PROVISION

General Insurance, Servicing, repair & maintenance in so far related to such vehicles,
Vessels, aircraft are not allowed except if it is used for

1. Purpose specified therein;

2. If above services received by manufacturer of such vehicles, vessels, aircrafts;

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3. If above services received by general insurance service provider in respect of such
motor, vehicles.
COMPARISON BETWEEN OLD AND NEW PROVISIONS :‐
OLD PROVISIONS
Section 17(5)(a):
Motor Vehicle & Other
Conveyance(Vessels & Aircraft)
Except it is used for:
1. Making taxable supplies‐Sale
of Such Vehicles
2. Transportation of Passengers
3. Used for Training Classes
4. Transportation for Goods
Expenses are relating to such
vehicles like repairs, Servicing,
Insurance were also not allowed
for claim ITC. (It was not
mentioned earlier in Act)
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Blocked Credits Under GST‐ Section 17(5) of CGST ACT, 2017
NEW PROVISIONS
Section 17(5)(a):
(1) Motor Vehicle for transportation of person
having approved seating capacity of not more than
13 persons;
Except when used for:
i)Further Supply of Vehicles
ii)Transportation of passenger (transport Agency)
iii)For Training Classes
(2) Vessels and Aircraft Except when used for:
i) Further Supply
ii)Transportation of passengers
iii)Imparting training on navigating such vessels
iv) Imparting training on Flying such aircraft;
v)Transportation of Goods.
General Insurance, Servicing, repair &
maintenance in so far related to such vehicles,
Vessels, aircraft are not allowed except if it is used
for
1. Purpose specified therein.
2. If above services received by manufacturer of
such vehicles, vessels, aircrafts
3. If above services received by general insurance
service provider in respect of such motor vehicles.
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9/17/21, 11:09 AM Blocked Credits Under GST‐ Section 17(5) of CGST ACT, 2017

Section 17(5)(b): Foods &
beverages, outdoor catering,
beauty treatment , health
insurance, cosmetic & plastic
surgery
Except it is used for:
Making outward taxable supply of
the same category of services or
an element of mixed or
composite supply.
Section 17(5)(b): Foods & beverages, outdoor
catering, beauty treatment , health insurance,
cosmetic & plastic surgery, renting or hiring of
motor vehicle as above
Except it is used for:
Making outward taxable supply of the same
category of services or an element of mixed or
composite supply. Such as we are getting in
Airplanes , where foods are sold as a composite
supply with ticket of airplanes.

Travel benefits to employees of Travel Benefits to Employees

company. Provided that the Input Tax Credit in respect of
such goods or services or both shall be available,
where it is obligatory for an employer to provide
the same to its employees under any law for the
time being in force.

*****

DISCLAIMER ; The views expressed are strictly of the author. The contents of this article
are solely for informational purpose. It does not constitute professional advice or
recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities
for any loss or damage of any kind arising out of any information in this article nor for any
actions taken in reliance thereon.

Tags: goods and services tax, GST, input tax credit

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Author Bio

Name: CS Deepak P. Singh

Qualification: CS

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9/17/21, 11:09 AM Blocked Credits Under GST‐ Section 17(5) of CGST ACT, 2017

Company: SBI GENERAL INSURANCE COMPANY LIMITED

Location: MUMBAI, Maharashtra, India

Member Since: 25 Aug 2018 | Total Posts: 147

A Qualified Company Secretary, LLB from Purvanchal University UP and a Science
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experience in the field of Secretarial Practice, Project Finance, Direct Taxes ,GST,
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