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INELIGIBLE INPUT TAX CREDIT UNDER GST REGIME

Goods and Services Tax - GST - By: - Mr. M. GOVINDARAJAN - Dated:- 17-4-2017 Last Replied Date:- 17-9-2017 - Section 17(5) of the Central Goods and Services Act, 2017 provides that input tax credit in respect of the following shall not be available- (a) motor vehicles and other conveyances except when they are used- (i) for making the following taxable supplies, namely- (A) further supply of such vehicles or conveyances; or (B) transportation of passengers; or (C) imparting training on driving, .....

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y; (ii) membership of a club, health and fitness centre; (iii) rent-a-cab, life insurance and health insurance except where- (A) 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; or (B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable comp .....

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ces or both are used in course of furtherance of business; (e) goods or services or both on which tax has been paid under Section 10 (Composition scheme); (f) goods or services or both received by a non resident taxable person except on goods imported by him; (g) goods or services or both used for personal consumption; (h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and (i) any tax paid in accordance with the provisions of Section 74, 129 and 130- Se .....

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ruction as including re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. Plant and machinery The explanation to Section 17(5) defines the term plant and machinery as apparatus, equipment and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- land, building or any other civil .....

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Rule 2(l) of CENVAT Credit Rules, 2004 are incorporated in Section 17(5) of the CGST Act, 2017. Rule 2(l) of CENVAT Credit Rules, 2004 defines the term input service . This term excludes certain services that means that such services are not eligible to take and utilize CENVAT credit which are as below- service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (specified services) in so far as they a .....

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a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or [the rent-a-cab service is ineligible for input tax credit subject to exception clause mentioned in Section 7(5)(b)(iii)] service of general insurance business, servicing, repair and maintenance, in so far as they relate to a motor vehicle which is not a capital goods, when used by- a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person; or an insurance company in r .....

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ces, cosmetic and plastic surgery are declared as ineligible input tax credit vide Section No. 17(5)(b) (i).Howeverwhere an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply.The particular category is to be prescribed by the Government. Membership of a club, health and fitness centre, life insurance service .....

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ce (this may be due to the various judgments of Tribunals/High Courts declaring that input service tax credit is eligible if it is spent for the compliance of the provisions of law); Such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of taxable composite or mixed supply] Capital goods Rule 2(a) of CENVAT Credit Rules, 2004 defines the term capital .....

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and pipes and fittings thereof; (vii) storage tank and (viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis, but including dumpers and tippers used- (1) in the factory of the manufacturer of the final products; or (1A) outside the factory of the manufacturer of the final products for generation of electricity or for pumping of water for captive use within the factory; or (2) for providing output service; (B) motor vehicle designed for tra .....

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on of passengers; or (ii) renting of such motor vehicle; or (iii) imparting motor driving skills (D) components, spares and accessories of motor vehicles which are capital goods for the assesse. Thus the definition of capital goods gives restrictions in availing credit. Section 2(19) of CGST Act, 2017 defines the term capital goods as goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the cours .....

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) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or (iii) all goods used for generation of electricity or steam or pumping of water for captive use; or (iv) all goods used for providing any output service; or; (v) all capital goods which have a value up to ten thousand rupees per piece, but excludes- (A) light diesel oil, high speed diesel oil or .....

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nal product; or (ii) the value of such capital goods is up to ten thousand rupees per piece; (D) motor vehicles; (E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and (F) any goods which have no relationship whatsoever with the manufacture of a final product. Explanation. - For the purpose of this clause, free warranty mean .....

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educed. Conclusion The definition of the term capital goods , inputs and input services is clear without giving place for interpretation as in the case of CENVAT Credit Rules. The only condition to observe is that the goods or services are used or intended to be used for the furtherance of business. Even though some categories mentioned in Section 17(5) (a), (b), (c) and (d) are not eligible to take input tax credit but if they are used for furtherance of business or some activities. The taking .....

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act services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.Explanation.-For the purposes of clauses (c) and (d), the expression .....

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