CA Ishu Bansal Blocked Credits under GST

A Brief Note on

“Blocked Credits under Goods and Services Tax (GST)”

Goods and Services Tax (GST), undoubtedly, has been the biggest tax reform in the
country since independence with Input Tax Credit (hereinafter "ITC") mechanism being
one of the core area, which deals with seamless flow of input credit till the supply reaches
the final consumer(s). The law aims at providing a smooth flow of credit at every stage of
value addition.
Section 2(63) of the Central Goods and Service Tax Act, 2017 (hereinafter "the said act")
defines “input tax credit” to mean credit of input tax. The term “input tax” has been
further defined u/s 2(62) of the said act. In simple terms, it can be inferred as the tax paid
by the supplier to the recipient under FCM or to the government under RCM, which is
allowed as deduction from tax payable by him (supplier) on his outward supplies.

Under GST law, credit of tax paid is available on most of the inward supplies, provided
they are used for making outward supplies. However there is an exception to this, which
has been specifically dealt in section 17(5) of the said act. The said section contains a list
of activities or transactions for which ITC claim is blocked. It is nothing but a negative list
covering mainly use of motor vehicles, vessels & aircraft, items of personal consumption,
inputs used in formation of immovable property, telecommunication towers, pipelines laid
outside factory premises etc and taxes paid as a result of detection of evasion of taxes, for
which no ITC is allowed.

The same has been tabulated below for the purpose of easy understanding:
Sl. No Sec. No. Particulars/Contents
Motor vehicles having except when used for :
seating capacity <= 13 (a) further supply of such
persons vehicles
17(5)(a) “Motor vehicles” shall (b) transportation of passengers
have meaning assigned to it
(c) imparting training on driving
in sec. 2(28) of The Motor
Vehicles Act, 1988 flying such aircraft /
(a)
navigating such vessels /
flying such aircraft
17(5)(aa) Vessels and Aircraft (d) transportation of goods by
such vessels and aircraft
services of general insurance, servicing, repair and
17(5)(ab)
maintenance of such motor vehicles, vessels or aircraft

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CA Ishu Bansal Blocked Credits under GST

Following supply of goods except where an inward supply

or services: of such goods or services is used
 food and beverages, for making an outward taxable
 outdoor catering, supply of the same category of
 beauty treatment, goods or services.
 health services,
17(5)(b)(i)  cosmetic and plastic
surgery,
(b)  leasing, renting or hiring
of motor vehicles,
vessels or aircraft,
 life insurance
 health insurance
17(5)(b)(ii) Membership of a club, health and fitness centre
Travel benefits provided to employees on vacation except
17(5)(b)(iii) where it is obligatory for employer to provide the same under
any law
(c) except where
 it is an input service for further
Works contract services
supply of works contract
17(5)(c) supplied for construction of
service
an immovable property
 immovable property is plant &
machinery
(d) Inputs and Input services used by taxable person for
17(5)(d) construction of an immovable property except plant &
machinery, on his own account.
(e) Goods or Services on which tax has been paid under
17(5)(e)
composition scheme
(f) 17(5)(f) Goods or Services received by NRTP except on his imports.
(g) 17(5)(g) Goods or Services used for personal consumption
(h) Goods
 lost
 stolen
17(5)(h)
 destroyed
 written off
 given as gift or samples
(i) 17(5)(i) Tax paid u/s 74,129 & 130 i.e., evasion; confiscation etc.

Note: There are certain cases in which ITC has also been specifically blocked as conditions for
paying tax at lower rates by issue of rate notifications
For instance, by issue of Notf. No. 11/2017–Central Tax (Rate) dated 28.06.2017, the Central
Govt. along with respective State govts. has restricted the availment of ITC as a condition for
paying tax at lower rates for services like GTA(9965), Rental services of transport
vehicles(9966) , Financial and related services(9971), Leasing or Rental services(9973) ,
Support services (9985) etc.

The above note does not cover in detail about such notifications.

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