GST: Input Tax Credit Explained (Part 2/7)

Section 17: Apportionment of credit and blocked credits

Section 17(1) says that where the goods and/or services are used by the registered taxable person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

• Interpretation:

Section 17(1) talks about apportionment of credit when inputs are used partly for business purposes and partly for other purposes. The input tax credit shall be available for the inputs used in business purposes only.

The following flow chart would help in simpler understanding:

Section 17(2) says that where the goods and/or services are used by the registered taxable person partly for effecting taxable supplies including zero-rated supplies under this Act or under the IGST Act, 2016 and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

An explanation to section 17(2) says that for the purposes of section 17(2) exempt supplies shall include supplies on which recipient is liable to pay tax on reverse charge basis under section 8(3).

 

• Interpretation:

Section 17(1) talks about apportionment of credit when inputs are used partly for taxable supplies including zero rated supplies and partly for exempt/non-taxable supplies. The input tax credit shall be available for the inputs used in taxable supplies including zero rated supplies only.

The following flow chart would help in simpler understanding:

Section 17(3) says that a banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of section 17(2), or avail of, every month, an amount equal to 50% of the eligible input tax credit on inputs, capital goods and input services in that month.

An explanation to section 17(3) says that the option once exercised shall not be withdrawn during the remaining part of the financial year.

• Interpretation:

This section allows any banking company or a financial institution including a non-banking financial company to claim input tax credit in either of the following two manners:

1. Either identify the inputs including capital goods and services used only towards taxable outward supplies and take tax credit for those inputs only, or
2. Take tax credit at 50% of all available credits including capital goods and services during a month.

• Either of the two options once chosen cannot be changed during the Financial Year.

 

Section 17(4) says that in spite of anything contained in section 16(1) and sections 18(1), 18(2), 18(3) and 18(4), input tax credit shall not be available in respect of the following—

• Motor vehicles and other conveyances, except when they are used-
• (i) For making the following taxable supplies, namely-
• Further supply of such vehicles or conveyances, or
• Transportation of passengers, or
• Imparting training on driving, flying, navigating such vehicles or conveyances,
• (ii) For transportation of goods.
• Supply of goods and services, namely—
• (i) Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward supply of the same category of goods or services,
• (ii) Membership of a club, health and fitness centre,
• (iii) Rent-a-cab, life insurance, health insurance except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force, and
• (iv) Travel benefits extended to employees on vacation such as leave or home travel concession.
• Works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service,
• Goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business,

The first explanation to section 17(4)(d) says that for the purpose of section 17(4)(d) the term ‘construction’ includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.

The second explanation to section 17(4)(d) says that ‘Plant and Machinery’ means apparatus, equipment, machinery, pipelines, telecommunication tower fixed to earth by foundation or structural support that are used for making outward supply and includes such foundation and structural supports but excludes land, building or any other civil structures.

• Goods and/or services on which tax has been paid under section 9,
• Goods and/or services 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 terms of section 67 (Determination of tax not paid or short paid or input tax credit wrongly availed or utilized by reason of fraud), section 89 (Detention and release of goods and conveyances in transit) or section 90 (Confiscation of goods or conveyances and levy of penalty).

 

• Interpretation:

This section provides a Negative List of items on which Input Tax Credit shall not be available under GST, and the exceptions where such credit may be allowed.

• Issues:
• The author is of the opinion that Section 17(4)(b) is a very constraining clause and the items listed shall be allowed for input tax credit.