Analysis of section 17(5) - All about block credit in case of motor vehicle

Introduction

Input Tax Credit (ITC) means the amount of tax paid on purchase of Input Goods, Input Services and Capital Goods and includes tax paid under Reverse charge. Then at the time of paying tax on output supplies, ITC can be used to reduce the output tax to the extent ITC available and pay the balance amount (if any).The GST regime promise seamless credit on goods and service across the entire supply chain with some exception like supplies under Composition scheme and supply of exempted goods and/or service. Due to this mechanism Input Tax Credit is the backbone of GST regime

ITC of tax paid on almost every inputs and input services used for supply of taxable goods and/or services is allowed under GST except a small list of items provided u/s 17(5).

The negative list covers mainly items of personal consumption, inputs and input services use of which results into formation of an immovable property (except plant and machinery), telecommunication towers, pipelines laid outside the factory etc and taxes paid as a result of detection of evasion of taxes.

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Section 17(5) of CGST Act 2017

Input tax credit shall not be available in respect of : -

1. Motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver).

ITC allowed of above ineligible motor vehicles only when they are used for making: -

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

Analysis –

• ITC on motor vehicle for transportation of person with seating capacity >13 persons (including driver) used for ANY PURPOSE is allowed.

• ITC on motor vehicles other than ineligible motor vehicles used for any purpose are allowed.

For example-

-Motor vehicle used for transportation of goods

-Dumper

2. Vessels and aircraft

ITC allowed only for the following person: -

• Making further supply of such vessels or aircraft

• Making taxable supply of transportation of passenger

• Making taxable supply of imparting training

• Transportation of goods

Analysis –

ITC on vessels and aircrafts other than purpose mentioned above are not mentioned.

3. General Insurance, servicing, repair and maintenance, relating to: -

• Ineligible motor vehicles

• Vessels

• Aircraft

ITC on such services are allowed: -

• · If purpose for which the above vehicles are used is eligible purpose.

• · Such services when received by –

  1. Manufacturer of ineligible motor vehicles, vessels or aircraft.

  2. Supplier of general insurance services in respect of ineligible motor vehicles, vessels or aircraft.

4. Leasing, renting or hiring of motor vehicles, vessels or aircraft on which ITC is not allowed.

ITC allowed

• if such services are used for making outward taxable supply of same category of service i.e sub-contracting or as an element of a taxable composite or mixed supply.

• if such services when provided by an employer to its employee under obligation.

Analysis –

ITC on Leasing, renting or hiring of motor vehicles, vessels or aircraft on which ITC is allowed, is also allowed.

Examples

• ITC and general insurance on cars purchased by a manufacturing company for official use of its employee is blocked.

• ITC and general insurance , repairs etc. on buses (seating capacity > 13 person) purchased by a company for transportation of its employee from office to residence and back, is allowed.

• ITC on cars purchased by car driving agency is allowed.

• ITC on trucks purchased by company for transportation of goods is allowed.

• ITC on aircraft purchased by a manufacturing company for official purpose is not allowed.