Page 58 - DTPA Journal Aug 18

DTPA - J | 2017-18 | Volume 3 | August 2018

Blocked Credit under GST

CA Sushil Goyal

Input tax Credit is the backbone of the GST and it is also Vessels and Aircraft. However ITC of the
a mechanism to avoid Cascading effect of taxes. One of following input services will be available to a
the fundamental features of GST is the seamless flow of taxable person if the said taxable person is
input credit across the chain (from the manufacture of engaged in the manufacture of such Motor
goods till it is consumed) and across the country. It was Vehicle, Vessels or Aircraft or in the supply of
expected that in GST regime, seamless credit would be general insurance services in respect of such
allowed to business houses. However, surprisingly, the Motor vehicle, Vessel or Aircraft insured by
credit restrictions mentioned under section 17(5) of the him.
CGST Act, 2017 continue to remain (in respect of both The Amendment bill also restricts credit of the
goods and services) in the GST regime. This Motor Vehicles for transportation of persons
continuation of denial will lead to substantial tax having seating capacity of not more than
cascading. Also, another round of litigation will result as thirteen (including driver), vessels and aircraft
interpretation issues would crop up while determining except when they are used for making
eligibility or otherwise of GST paid on personal specified taxable supplies. Further, the words
consumptions without any denial or any restriction 'other conveyances' have been removed, the
except say goods / services which are availed for amendment is sought to make it clear that
personal use and not for official use. input tax credit would now be available in
As per section 16(1) of the CGST Act,2017 , any respect of dumpers, work-trucks, fork-lift
registered person can avail credit of tax paid on the trucks and other special purpose motor
inward supply of goods or services or both which is used vehicles.
or intended to be used in the course or furtherance of 2. Food, beverages, club memberships and others
business and the said amount shall be credited to ITC is not available for the supply of following
electronic credit ledger. However as per Section 17(5) goods or services or both:
of the CGST Act, 2017, there are certain supplies on ·Food and beverages
which input tax credit under GST is not available. ·Outdoor catering
Credit of following Inward supply of goods or services ·Beauty treatment
or both not eligible as Input tax Credit: ·Health services
1. Motor Vehicle and other conveyances except used ·Cosmetic and plastic surgery
for : However, ITC will be available if the category of
a. Taxable supply of such Vehicle or inward and outward supply is same or the
Conveyance component belongs to a mixed or composite
b. Taxable Supply of Transportation of supply under GST.
Passengers
c. Taxable supply by way of Imparting, For Example:
I.
XYZ Firm arranges for an office party for its
training, on driving, flying, navigating employees. It will not be able to claim ITC on
such vehicle or conveyance the food & beverages served.
d. For Transportation of Goods II. 2. XYZ Firm provides lunch to its employees
It is pertinent to note that the law is silent as to free of cost, then no ITC available. However if
ITC related to repairs and maintenance,
insurance and servicing. However, the CGST the same firm charges for the lunch from the
employees then ITC available as definition of
(Amendment) Bill, 2018 passed in Lok Sabha Business includes any activity or transaction in
th
on 9 August clearly restricts ITC of the connection with or incidental or ancillary to.
following input services: 3. Sale of membership in a club, health, fitness
a) general insurance, centre
b) servicing, No ITC will be allowed on any membership fees for
c) repairs and maintenance gyms, clubs etc.
in so far as they relate to Motor vehicles,
For Example: X, a Managing Director has taken

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