When input tax credit shall not be allowed under GST law

Goods and services tax has been implemented in India to get rid of the cascading effect of tax under the earlier indirect tax regime. Therefore, input tax credit is allowed under different circumstances to registered taxable persons if certain conditions as specified under the law are satisfied. However, this law has certain provisions where a registered taxable person is not be allowed to claim input tax credit. It’s also known as blocked credits.

In this article, we will be discussing those cases where input tax credit cannot be taken by the registered person or cases where ITC is blocked under GST law. Input tax credit shall not be available in respect of following.

Motor Vehicles

Motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely :—

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

As per section 2(76) of CGST and SGST Act, motor vehicle has the meaning assigned to it in section 2(28) of motor vehicle act,1988. As per this section, motor vehicle or vehicle means any mechanically propelled vehicle adapted for use upon roads whether the power of propulsion is transmitted thereto from external of internal sources and includes a chassis to which a body has not been attached and a trailer; but does not include:-

  • A vehicle running upon fixed rails or
  • Vehicle of a special type adapted for use only in factory or any other enclosed premises, or
  • A vehicle having less than 4 wheels fitted with an engine capacity of not exceeding 25 cubic centimetres.

Based on this definition, ITC of GST paid on trippers, and dumpers will be available as these are not motor vehicles as per motor vehicle act.

vessels and aircraft

Vessels and aircraft except when they are used —

(i) for making the following taxable supplies, namely :—

(A) further supply of such vessels or aircraft; or

(B) transportation of passengers; or

(C) imparting training on navigating such vessels; or

(D) imparting training on flying such aircraft.

(ii) for transportation of goods.

Services related to motor vehicle, vessels and aircraft

Services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft.

However, input tax credit in respect of such services shall be available —

  • where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein.
  • where received by a taxable person engaged —

(I) in the manufacture of such motor vehicles, vessels or aircraft; or

(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him.

Construction

Input tax credit on works contract services for construction of an immovable property is blocked except when;

  • 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. Works contract is a composite supply involving both goods and services.
  • 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.

In this case construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.

For this purpose, the expression plant and machinery means apparatus, equipement, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods and/or services and includes such foundation and structural supports but excludes –

  • Land, building or any other civil structures;
  • Telecommunication towers; and
  • Pipelines laid outside the factory premises.

List of cases for which input tax credit is not allowed

In the following supply of goods and/or services input tax credit shall not be available.

  1. food and beverages;
  2. outdoor catering;
  3. beauty treatment;
  4. health services;
  5. cosmetic and plastic surgery;
  6. Leasing;
  7. renting or hiring of motor vehicles;
  8. Renting or hiring of vessels or aircrafts;
  9. Life insurance;
  10. Health insurance;
  11. renting or hiring of motor vehicles; and
  12. travel benefits extended to employees on vacation such as leave or home travel concession. However, 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.
  13. Inward supplies charged to tax under composition levy
  14. goods or services or both received by a non-resident taxable person except on goods imported by him;
  15. goods or services or both used for personal consumption;
  16. goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
  17. any tax paid in fraud cases, detention, confiscation etc in accordance with the provisions of sections 74, 129 and 130.

Input tax credit in respect of goods and/or services listed from point number 1 to 10 shall be available where inward supply of such goods and/or services is used by a registered person for making an outward taxable supply of the same category of goods and/or services or as an element of a taxable composite or mixed supply.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.