SECTION 17 (5) – BLOCK CREDIT IN SPECIAL CASES
INTRODUCTION
Breaking down the complexities of Blocked Input Tax Credit (ITC) under GST? Let’s decode the provisions relating to block credit and provide clarity on its implications and practical impact. This section is crucial as it offers clear restrictions on ITC claims. Note this section has an overriding effect on provisions of Section 16(1) & Section 18(1).
BLOCK CREDIT
Blocked credit is the input tax credit that is not allowed even for the registered taxpayers though they may use it in furtherance of their business, there are certain exceptions to items that are in the list of blocked credits but subject to those exceptions no credits can be taken against the items in the list of blocked credit.
Below is the list of clauses on which ITC is blocked :
CLAUSE 1 - Passenger Motor Vehicle and other Conveyances and related services
Businesses are not allowed to claim any input tax credit (ITC) on purchasing passenger motor vehicles, including cars, autos, tempos, buses, and motorbikes.
However, this restriction applies only to vehicles with a seating capacity of 13 or fewer persons, including the driver, such vehicles are called ineligible vehicles.
In contrast, if a taxpayer acquires a passenger motor vehicle with a seating capacity of 14 or more persons, including the driver, the ITC is allowed, irrespective of the taxpayer's business nature.
However, in the following 3 cases, ITC is allowed irrespective of the seating capacity of the passenger motor vehicles:
1. Making further taxable supply of such motor vehicles. (eg: A car dealer)
2. Making taxable supply of transportation for passengers. (Eg: travel operator offering passenger transportation services)
3. Making taxable supply of imparting training on driving or operation of such motor vehicle. (eg: motor vehicle driving school)
ITC Availability
| Motor Vehicles | Purpose | ITC Availability |
|---|---|---|
| vehicles with a seating capacity of 13 and less person | Not the specified 3 cases | Blocked |
| vehicles with a seating capacity of 13 and less person | Specified cases | Available |
| vehicles with a seating capacity of 14 or more person | Not the specified 3 cases | Available |
Let’s understand better with these illustrations :
Illustration 1
XYZ Pvt. Ltd. a manufacturing company purchased cars for the official use of its employees.
The cars purchased are ineligible vehicles since they have a seating capacity of less than 13 people.
The cars are used for official use by its employees which is an ineligible purpose.
Thus, the Input Tax Credit (ITC) will be blocked on the purchase of ineligible vehicles that are utilized for ineligible purposes.
Illustration 2
XYZ Car Dealer purchases cars for sale to customers.
The cars purchased are ineligible vehicles since they have a seating capacity of less than 13 people.
The cars are used for further supply to the customers which is an eligible purpose.
Thus, the Input Tax Credit (ITC) will be allowed on the purchase of ineligible vehicles that are utilized for eligible purposes.
Illustration 3
XYZ Pvt. Ltd. is a company that is engaged in renting out cars (seating capacity is more than 13 people) for the transportation of passengers and purchases a bus for transportation by its employees.
Buses purchased by the company fall under eligible vehicles.
But the bus is used for the transportation of employees which is an ineligible purpose but generally buses have seating capacity of more than 13 persons so the company can claim the input.
Thus, The Input Tax Credit (ITC) will be allowed for eligible vehicles even if it is used for ineligible purposes.
CLAUSE 1 (b) - Vessels and Aircraft
In case when Vessels and Aircraft are used for any other purpose than the eligible purpose Input Tax Credit is not allowed.
What are eligible purposes?
Making further taxable supply of such vessels and aircraft.
Making further taxable supply of transportation of passengers.
Making taxable supply of imparting training on navigating such vessels.
Making taxable supply of imparting training on flying such aircraft.
Transportation of goods.
Thus, Input Tax credit on vessels and aircrafts used for eligible purposes is available.
Note: Input Tax Credit on General insurance, Servicing and repair and maintenance of Ineligible motor vehicles, Vessels, or Aircraft is blocked, if the Input Tax Credit on such Motor Vehicles, Vessels, or Aircraft is blocked, and vice-versa.
CLAUSE 2 - Food, Beverage and Outdoor catering services, Beauty Treatment, Health Services and Cosmetic Surgery
Input Tax Credit is blocked on foods and beverages, outdoor catering, beauty treatment, health services, cosmetic plastic surgery, life insurance and health insurance, membership of clubs, health and fitness centres etc.
However, Input Tax Credit is Available in the following situations:
In the case of Sub- contracting and further supply.
when such goods or services are provided by an employer to its employee under a statutory obligation.
CLAUSE 3 - Work Contract Services for Construction of Immovable Property
Input Tax Credit is blocked on input services relating to the construction of office buildings, factory buildings etc.
Input Tax Credit on work contract services used in the construction of immovable property is available only in these three situations:
In the case of sub-contracting.
If the immovable property is plant & machinery.
When the value of the services is not capitalised in books of accounts.
CLAUSE 4 - Self-construction of an Immovable Property
Input Tax Credit is not allowed on goods and services received by a taxable person for the construction of an immovable property on his own account even though such goods and services are used for in course or furtherance of business.
Input Tax Credit on goods and services used in the construction of immovable property is available only in these three situations:
For the construction of eligible plant & machinery.
When the value of goods or services is not capitalised.
When the construction is not on its own account in other words the construction is not for own use or construction is for reselling the property (Example contractor and developers).
CLAUSE 5 - Inward supplies chargeable to tax under composition levy
Input Tax Credit on inward supplies received by a taxable person from a composition supplier is blocked under this section.
No ITC can be availed by such a recipient since such a supplier (composition supplier) issues a bill of supply and not a tax invoice.
CLAUSE 6 - Inward supplies received by a non-resident taxable person
Non-resident taxable persons have no fixed place of business in India, they occasionally supply goods or services in India.
Such a person cannot claim ITC on domestic purchases and import of services made.
However, ITC is allowed on import purchase of goods only.
CLAUSE 7 - Inward supplies used or intended to be used for CSR
ITC shall not be available in respect of goods or services received by a taxable person which are used or intended to be used for activities relating to its obligation under corporate social responsibility CSR (referred to in section 135 of the Companies Act, 2013)
CLAUSE 8 - Inward Supply used for personal consumption
The foremost condition laid down in section 16 for availing ITC is that such goods or services should be used in the course or furtherance of business. Section 17 restricts the ITC as much as is attributable to non business purposes, i.e., no ITC on goods or services purchased for personal consumption.
Thus, ITC on goods and/or services used for or intended to be used for personal consumption is blocked.
CLAUSE 9 - Free Sample, Gifts, Lost or stolen Goods etc.
ITC is blocked on goods that are disposed off by way of gift, goods that are disposed off by way of free samples, lost goods, stolen goods, destroyed goods, and goods that are written off.
Principally, ITC is available only for payment of tax on output supply.
Thus, ITC is blocked on the above goods as no tax is payable on its outward supply.
Exception: When such goods are used in respect of various sales promotion schemes.
ITS on schemes like ‘Buy One Get One Free’ offer, discounts such as ‘Buy more, Save more’ or secondary discounts, when such discounts and offers are concerned with the supply of goods or services.
Clause 10 - Tax Paid in Fraud Cases, Detention, Confiscation etc.
Tax paid under Sections 74, 129, and 130 of the CGST Act is not eligible for input tax credit (ITC).
Disclaimer: This article is based on the information available as of February 25, 2025. The content reflects the author's interpretations of provisions of the CGST Act, 2017. While every effort has been made to ensure the accuracy of the information, the author does not guarantee its completeness or reliability. Readers are advised to consult with a professional tax advisor for specific advice tailored to their individual circumstances.