Blocked Credit Under GST / Blocked ITC - Section 17(5)

ITC of tax paid is available on almost every input service used to make a supply of taxable goods or services or both except for a brief list of items listed under section 17(5) of CGST Act 2017. As per section 17(5), a registered person won’t be eligible to take ITC on GST paid on certain services or goods he received, which are mentioned in the proviso thereon.

This negative list contains primarily the items related to personal consumption, telecom towers, pipelines laid outside factors, inputs used in construction, etc. Let's understand this list in depth.

ITC ON MOTOR VEHICLES

ITC of GST paid on motor vehicles designed for transportation of persons having approved seating capacity of not more than 13 persons including the vehicle driver shall be blocked credit even if such vehicle is used in the course or furtherance of the business. 

Nevertheless, the ITC will be allowed if the vehicle is used in further supply, transportation of passengers, or imparting training on driving such motor vehicles. 

One must note that the above condition is only for vehicles having a capacity of not more than 13 persons, any capacity above the said limit shall be allowed if such vehicle is used in the course or furtherance of the business. 

ITC ON VESSELS AND AIRCRAFT

ITC on aircraft and vessels is blocked credit despite the same benign used in the course or furtherance of the business. But the same is allowed when the aircraft or vehicle is used for further supply, transportation of goods & passengers, and imparting training.

As per Sec 17(5), ITC on Services such as general insurance, repair, maintenance, leasing, renting, or hiring of the motor vehicle, aircraft, or vessel shall be blocked credit unless the ITC on the motor vehicle, aircraft, or vessel is allowed. 

Provided that where the general insurance and repair and maintenance services are available by a manufacturer or an insurer in respect of the above motor vehicle, aircraft, or vessel, these 2 services are eligible for ITC.

ITC ON PERSONAL CONSUMPTION

ITC shall be blocked credit on Food and beverages, catering, health services, cosmetic and plastic surgery, beauty treatments, leasing, renting, or hiring of aircraft, vessels, or motor vehicles (except when used for the purpose stated above), and health and life insurance.

Given that ITC shall be allowed on the above if the same is an inward supply and is used for making an outward taxable supply of the same category or as an element of a taxable mixed or composite supply. 

Further, ITC on membership of a health or fitness centre/club and travel benefits to employees on vacation such as home travel concession or LTC is blocked credit. 

Provided that the ITC paid on the purchase of goods or services or both covered above should be available, where an employer must provide the same to its employees under any law for the time being in force.

ITC ON CONSTRUCTION

• ITC on works contract services for the construction of an immovable property is blocked credit except when the same is input service for further supply of work contract service or the immovable property is a plan or machinery 

• Inward suppliers received by a taxable person for construction of an immovable property other than a P&M on his account even when such supplies are used in the course or furtherance of business. 

Here in Section 17(5), Plant and Machinery (P&M) means machinery, equipment, or apparatus fixed to earth by foundation or structural support used for making outward supply and includes such foundation and structural supports but excludes land and building, telecom towers, and pipelines laid outside the factory premises. 

MISC SUPPLIES ON WHICH ITC IS BLOCKED CREDIT

• Purchases are subject to a taxation composition scheme under section 10 of this act. 

• Inward supplies are received by a non-resident taxable person (NRTP) except for the goods being imported by him. 

• Goods or services for personal consumption. 

• Goods that have been stolen, destroyed, lost, written off, or disposed of as a gift or free sample.

CONTRAVENTION OF THIS SECTION 17(5)

If a taxable person fails to comply with the provisions of 17(5), the buyer or the recipient has to reverse any ITC that was availed and claimed wrongfully. They might also have to pay an interest amounting to 24% from the date of claiming to the date of claim reversal.

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