Provisions under Section 17 of the Central Goods and Services Tax (CGST) Act, 2017 relating to “Apportionment of Credit and Blocked Credits”, are as under:
Section 17 of CGST Act 2017: Apportionment of Credit and Blocked Credits (CHAPTER V – INPUT TAX CREDIT)
(1) Where the goods or services or both are used by the registered 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.
(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act 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.
(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
Explanation.- For the purposes of this sub-section, the expression ‘‘value of exempt supply’’ shall not include the value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule except,-
(i) the value of activities or transactions specified in paragraph 5 of the said Schedule; and
(ii) the value of such activities or transactions as may be prescribed in respect of clause (a) of paragraph 8 of the said Schedule. [Refer Note 1(a) & 2(a)]
(4) 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 sub-section (2), or avail of, every month, an amount equal to fifty per cent. of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse.
Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year:
Provided further that the restriction of fifty per cent. shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number.
(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-
(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, flying, navigating such vehicles or conveyances;
(ii) for transportation of goods; [Refer Note 1(b)]
(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:-
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles; [Refer Note 1(b)]
(aa) vessels and aircraft except when they are used–
(i) for making the following taxable supplies, namely:-
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods; [Refer Note 1(b)]
(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):
Provided that the input tax credit in respect of such services shall be available-
(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
(ii) where received by a taxable person engaged-
(I) in the manufacture of such motor vehicles, vessels or aircraft; or
(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him; [Refer Note 1(b)]
(b) the following supply of goods or services or both-
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where 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;
(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 composite or mixed supply; and
(iv) travel benefits extended to employees on vacation such as leave or home travel concession; [Refer Note 1(b)]
(b) the following supply of goods or services or both—
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:
Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both 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;
(ii) membership of a club, health and fitness centre; and
(iii) travel benefits extended to employees on vacation such as leave or home travel concession:
Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force. [Refer Note 1(b)]
(c) works contract 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 “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person except on goods imported by him;
(fa) goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013; [Note 2(b)]
(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 sections 74, 129 and 130.
(6) The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed.
Explanation: For the purposes of this Chapter and Chapter VI, the expression “plant and machinery” means 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-
(i) land, building or any other civil structures;
(ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
| Note: CBEC notifies 01/07/2017 as the Commencement date for Sections 6 to 9, 11 to 21, 31 to 41, 42 [except proviso to sub-section (9)], 43 [except proviso to sub-section (9)], 44 to 50, 53 to 138, 140 to 145, 147 to 163 and 165 to 174 of the CGST Act 2017, vide Notification 9/2017. |
Amendments History:
1. Amendments made vide Section 9 of the CGST (Amendment) Act, 2018 (GOI Notification dated 29/08/2018), followed with Notification 2/2019 on commencement date of 01/02/2019:
a) Explanation inserted in Sub-section (3); and
b) Clause (a) and (b) of Sub-section (5) substituted. Also clause (aa) and (ab) of Sub-section (5) inserted.
2. Amendments made vide the Finance Act, 2023, followed with Central Tax Notification 28/2023 on commencement date of 01/10/2023:
(a) in sub-section (3), in the Explanation, the text “except those specified in paragraph 5 of the said Schedule”, substituted with the text “except,-
(i) the value of activities or transactions specified in paragraph 5 of the said Schedule; and
(ii) the value of such activities or transactions as may be prescribed in respect of clause (a) of paragraph 8 of the said Schedule.”
(b) in sub-section (5), clause (fa) inserted.
Commentary on Section 17 of CGST Act
Section 17 of the Central Goods and Services Tax (CGST) Act, 2017 addresses “Apportionment of Credit and Blocked Credits”. It comprises several sub-sections:
Section 17(1) of CGST Act
This sub-section states that if goods/services are used partially for business and partially for other purposes, the input tax credit (ITC) should only be for the part used for business.
Section 17(2) of CGST Act
Similar to sub-section (1), this sub-section restricts ITC to the part used for taxable supplies including zero-rated supplies when goods/services are used partly for exempt supplies.
Section 17(3) of CGST Act
This sub-section specifies how the value of an exempt supply should be calculated. It includes reverse charge supplies, securities transactions, land sales, and, conditionally, building sales.
Section 17(4) of CGST Act
This sub-section provides banking companies or financial institutions an option to comply with sub-section (2) or opt for a monthly 50% of ITC, with remaining to lapse; also with restrictions.
Section 17(5) of CGST Act
This sub-section defines numerous exceptions of goods/services where ITC is not available, like motor vehicles used for personal reasons, food and beverages, cosmetic surgeries, club memberships, and services related to the construction of immovable property, among others. Various clauses of this crucial sub-section blocks ITC, as under:
i) Clause (a) relates to motor vehicles for passenger transport with seating of no more than 13 people (driver included). Exceptions are when these vehicles are used for further supply, passenger transportation, or driving-training.
ii) Clause (aa) applies to vessels and aircraft, except when used for further supply, passenger transportation, navigation or flight training, or transporting goods.
iii) Clause (ab) refers to services of general insurance, servicing, repair, and maintenance related to the vehicles, vessels, or aircraft in clause (a) or (aa), based on specific conditions.
iv) Clause (b) deals with supplies like food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting, or hiring motor vehicles, vessels or aircraft, life insurance, and health insurance unless used for certain specified business purposes. Also addresses club, health, and fitness center memberships and employee travel benefits, provided there are specific legal obligations.
v) Clause (c) & (d) relates to the works contract services and goods/services used for the construction of an immovable property, excluding plant and machinery, except under certain circumstances.
vi) Clause (e), (f) & (fa) blocks ITC on goods/services where tax has been paid under section 10, goods/services received by a non-resident taxable person (except imported goods), and goods/services used for corporate social responsibility obligations.
vii) Clause (g), (h) & (i) relates goods/services used for personal consumption, goods lost, stolen, destroyed, written off or disposed as gifts or free samples, and any tax paid under specific sections.
Section 17(6) of CGST Act
This sub-section states that the Government may prescribe the means of attributing ITC referred to in sub-sections (1) & (2).
The explanation at the end clarifies the meaning of “plant and machinery” for this Chapter and Chapter VI, excluding items like land, buildings, telecommunication towers, and off-premises pipelines.
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Note: The CGST Act 2017 has been notified vide GOI Notification dt. 12/04/2017, which has subsequently been amended through CGST (Extension to J&K) Act 2017, Finance Act 2018, CGST Amendment Act 2018, Finance Act 2019, Finance Act 2020, Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020, Finance Act 2021, Finance Act 2022 including various Notifications issued by the Govt./ CBIC from time to time, relating to the commencement dates of various Sections/ Provisions in the respective CGST/ Amendment Acts, wherever required. Information on this page is a Section-wise compilation of the Amendments made by various Notifications issued by CBIC from time to time, with best possible efforts for accuracy. In any case, E&OE. For official/ updated information, please visit CBIC website.
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ITC credit restrictions u/s 17(5)(h) in respect of free samples distribution is against the very basic of the definition of Supply under GST, i.e. ‘….in the course of furtherance of business’. This restriction should be reviewed/ removed.