Did you know ITC is not Allowed on Certain Purchases under GST

Did you know ITC is not Allowed on Certain Purchases under GST ? if your Answer is No then this blog is for you.

Let’s Understand the concept with relevant Case Studies :

SECTION 17(5) BLOCKED CREDITS

SECTION 17 (5): Notwithstanding anything contained in sub-section (1) of section 16 and sub- section (1) of section 18, input tax credit shall not be available in respect of the following, namely:—

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:—
- further supply of such motor vehicles; or
- transportation of passengers; or
- imparting training on driving such motor vehicles; (aa) vessels and aircraft except when they are used––
  - for making the following taxable supplies, namely:—
    - further supply of such vessels or aircraft; or
    - transportation of passengers; or
    - imparting training on navigating such vessels; or
    - imparting training on flying such aircraft;
  - for transportation of goods;

(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):

Provided that the 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—
- in the manufacture of such motor vehicles, vessels or aircraft; or
- in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

EXPLANATION

Vehicle purchased for display regarding promotion is eligible for ITC (Choegule Industrises Private Limited)
If company provides vehicles to others on lease then ITC on purchase of vehicle is allowed (NARSINGH TRANSPORT IN AAR – MP).
If motor vehicle purchased for for supplying Rent –a –cab services then ITC is not allowed on purchase of (Refer section 17(5)
- (Mohana Ghosh – AAR – WEST BENGAL)
No ITC on vehicle used for transportation of cash. Because cash is not covered under the definition of Goods(Infor System – AAAR )
the following supply of goods or services or both—
- food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both 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;

membership of a club, health and fitness centre; and
travel benefits extended to employees on vacation such as leave or home travel concession:

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.

EXPLANATION:

There is in house hospital in port premises for providing medical facilities to employees or And this is also required by major ports act. Although ITC is not allowed due to that the medical facilities are for personal consumption of employees. (CHENNAI PORT TRUST AAR – TAMIL NADU)
Canteen Facility in factory for employees is mandatory when no. of employees 250 or more in that case ITC shall be
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;

IMPORTANT

ITC on Plant and machinery procurement is
If repair and renovation not capitalized in the books of accounts then ITC shall be
Shed to protect plant and machinery are civil structure hence ITC not allowed (AAR – AP)
No ITC on Lift installed in building because it is an part of immovable (Lal Palmas Co – Operative Housing Society Ltd. AAR – MAHARASTRA)
ITC on material purchased for own account Construction ITC is not
If anyone providing services of renting of immovable property then ITC on construction expenses shall be Because without construction renting is not possible(CCE v. Dymos India Automotive P.Ltd (Madras High Court)
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

Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;

goods or services or both on which tax has been paid under section 10(i.e. Composition Scheme);
goods or services or both received by a non-resident taxable person except on goods imported by him;
goods or services or both used for personal consumption;
goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples and
any tax paid in accordance with the provisions of sections 74, 129 and 130. (i.e. GST paid after detection of fraud or suppression or goods removed in contravention of GST

EXPLANATION

Gifts distributed between customer for target based sales then ITC shall not be allowed on that
Free samples are not subject to GST hence ITC has to be reversed on such
Expenses on CSR Activities but ITC shall not be allowed on that
No ITC on goods supplied free for brand promotion or sales promotion(SANOFI INDIA AAR –MAHARASTRA)

Explanation.––For the purposes of this Chapter and Chapter VI, 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—

land, building or any other civil structures;
telecommunication towers; and
pipelines laid outside the factory

IMPORTANT

If any business maintain any garden house for its employees and non employees then ITC on expenses made regarding such garden are not eligible under GST but if those are business requirement then ITC shall be allowed for guest houses, transit houses, training hostels etc. (NATIONAL ALUMINIUM LTD. – AAR ODISHA)
If business growth and sustainability is depending on CSR Activity then ITC on Input services on such CSR activity shall be (Essel Petropack V.CCGST) (decision prior to GST but same principal shall be applicable in GST also)
If brokerage received regarding renting of building then ITC shall be allowed that case because renting is a commercial (AAR – TAMILNADU)
If furniture purchased is movable then ITC shall be allowed (AAR – RAJASTHAN)
If any person going for construction of resort and for that purpose he is paying lease rent on land during pre operating period shall be capitalized in the books of accounts on which ITC shall not be allowed under GST (GGL HOTEL AND RESORT COMPANY – AAR WEST BENGAL)
If any company provides residential accommodation to its employees in that case ITC on repair , renovation of those property is not allowed to that (NATIONAL ALUMINIUM COMPANY LTD. AAAR – ODISHA)

GST

Did you know ITC is not Allowed on Certain Purchases under GST