Block Credit under GST- All you need to know

As per provision of GST law, the taxpayer can avail the input credit of inwards supplies. But department has restricted the input credit on some supplies i.e. said as Block Credit under GST. Credit will not be available on specified supplies, even if those are for furtherance of business.

The negative list covers items of personal consumption, tele communication towers etc.

The list goods and services on which credit is blocked:

i. Motor vehicle and other conveyances and related services:

As per motor vehicle and conveyances does not include the followings:

Vehicle running upon fixed rails(railways);
Special purpose vehicle used in a factory or any enclosed premises;
Vehicle less than 4 wheels fitted with engine capacity of up to 25cc.

1. Block Credit under GST on purchase of motor vehicles having capacity less than or equal to 13 (including driver). if not covered under below exceptions:

making further taxable supply of such motor vehicle;
making taxable supply of transportation of passengers;
making taxable supply in relation to driving schools;
Vehicles used for transportation of goods.
Transportation vehicle having seating capacity more than 13.

2. Block credit under GST on purchase of vessels and aircraft: Exception to this is:

making further taxable supply of such vessels and aircraft;
making taxable supply of transportation of passengers;
making taxable supply in relation to navigation training of vessels;
making taxable supply in relation to training on flying aircrafts
Used for transportation of goods.

3. ITC is not available on general insurance, servicing, repair and maintenance; if ITC not available in above 2 cases.

If taxpayer is eligible to claim input credit in above 2 cases, then ITC on general insurance, servicing, repair and maintenance is allowed.

4. ITC is available on leasing, renting or hiring of motor vehicle, vessels or aircraft; if ITC is available in point 1 and 2 above.

ITC is available in case of subcontracting i.e., when such service is used by the taxpayer who is in same line of business.

ii. Foods & beverages, outdoor catering, health services and other services:

As per provision ITC is not allowed on following services:

Foods and beverages;
Outdoor catering;
Beauty treatment;
Health Services;
Cosmetic and plastic surgery;
Life and health insurance;
Membership of a club, health and fitness center;
Travel benefits extended to employees on vacation such as leave or home travel concession.

Exception to goods or services mentioned above are:

If such goods or services are provided under legal obligation, ITC is available.
Such goods or services used by a taxpayer for making outwards taxable supply of the same category or part of composite supply.

iii. Work contract services for construction of immovable property:

ITC is not available on construction activities like office building, factory building etc.

Exception to above provision, where ITC is available on contract services:

When the taxpayer avails the service from a subcontractor for contract services.
For construction of plant and machinery (refer definition of Plant and machinery. In this case, ITC is available to all recipients irrespective of business line.
Where value of contract service is not capitalized (capitalization as per accounting GAAP. In this case, ITC is available to all recipients irrespective of business line.

iv. Self-construction of immovable property:

ITC is not allowed in case of self-construction of immovable property, except for following cases:

For construction of plant and machinery.
Where value of contract service is not capitalized (capitalization as per accounting GAAP.
Construction is not on own account.

v. Purchase of goods or services from composition supplier:

The taxpayer taking services from composition supplier will not be eligible for ITC. As the composition supplier does not collect tax from a taxpayer.

vi. No ITC to non-resident taxable person:

ITC is not available to non-resident taxable person on goods and services purchased by him in India. But, Input on imported goods is allowed.

vii. No ITC on purchase of goods or services for personal consumption or non-business use.

viii. Free samples, gifts, goods lost/stolen etc.

ITC is not available in those cases where goods are given as free samples, gifts or lost etc.

But, for below mentioned supplies department has allowed ITC as per circular 92/11/2019:

Samples and free gifts. (If gift distribution or free samples fall within the scope of supply under schedule I of section 7.
Buy one get one free offer. (If single price is charged for entire supply.)
Discounts including ‘Buy more, save more’ offers.
Secondary discounts.

Note: Return of expired medicine or drugs will be considered as fresh supply.

ix. Tax paid in fraud cases, detention, confiscation etc.

Tax paid as a result of tax evasion, detention of goods etc. under section 74, 129 and 130 is not available as ITC.

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