Understanding Section 17 of the
CGST Act: Apportionment of Credit and Blocked Credits
The
Central Goods and Services Tax (CGST) Act, 2017 is a comprehensive statute
designed to streamline indirect taxation in India. One of the crucial sections
of this act is Section 17, which deals with the apportionment of credit and
blocked credits. This section lays down the rules regarding the eligibility and
conditions for availing input tax credit (ITC), including specific
circumstances where ITC is restricted or disallowed. In this article, we will
explore the intricacies of Section 17 in detail.
1. Apportionment of Credit: Section
17(1)
Section
17(1) specifies that ITC can only be claimed on inputs and input services used
for business purposes. When goods or services are used partly for business and
partly for other purposes, ITC is allowed only to the extent they are used for
business purposes. This ensures that ITC is not claimed for personal use or
non-business activities.
2. Apportionment in Case of Exempt
Supplies: Section 17(2)
Section
17(2) deals with the apportionment of ITC when goods or services are used
partly for effecting taxable supplies, including zero-rated supplies, and
partly for effecting exempt supplies. In such cases, ITC is allowed only to the
extent of taxable supplies, including zero-rated supplies. The value of exempt
supplies includes transactions specified in Schedule III of the CGST Act,
except those under paragraph 5 of the Schedule.
3. Special Provisions for Banking
Companies and Financial Institutions: Sections 17(3) and 17(4)
Section
17(3) provides an option for banking companies or financial institutions,
including non-banking financial companies (NBFCs), engaged in the supply of
services by way of accepting deposits, extending loans, or advances. They can
either:
·
Comply with the provisions of Section
17(2), or
·
Avail of 50% of the eligible ITC on
inputs, capital goods, and input services in a month while lapsing the
remaining ITC.
Section
17(4) further elaborates on these special provisions for banking companies and
financial institutions, highlighting their unique position in the GST
framework.
4. Blocked Credits: Section 17(5)
Section
17(5) lists specific cases where ITC is not available, often referred to as
"blocked credits." These include:
·
Motor
vehicles and conveyances, except when used for certain
specified purposes such as further supply of such vehicles, transportation of
passengers, imparting training on driving, flying, navigating such vehicles, or
for transportation of goods.
·
Supply
of goods and services like food and beverages, outdoor
catering, beauty treatment, health services, cosmetic and plastic surgery,
leasing, renting, or hiring of motor vehicles, life insurance, and health
insurance, except where these are used for making an outward taxable supply of
the same category.
·
Membership
of clubs, health, and fitness centers.
·
Rent-a-cab,
life insurance, and health insurance unless obligatory for
an employer to provide under any law.
·
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 for construction of immovable property on
one’s own account, other than plant and machinery.
·
Goods
or services received by a non-resident taxable person,
except for goods imported by him.
·
Goods
or services used for personal consumption.
·
Goods
lost, stolen, destroyed, written off, or disposed of by way of gift or free
samples.
·
Any
tax paid under Sections 74, 129, and 130 of the CGST Act, which
pertain to cases of fraud, willful misstatement, and confiscation of goods
respectively.
5. Definitions: Section 17(6)
Section
17(6) provides the definitions and clarifications for terms used within Section
17, such as "plant and machinery." This ensures that the
interpretation of the provisions is clear and unambiguous.
6. Prescribed Manner: Section 17(7)
Section
17(7) mandates that the apportionment of ITC and blocked credits under this
section must be carried out in the manner prescribed in the CGST Rules. This
allows for detailed procedural guidance to be provided through the rules,
ensuring proper implementation of the section.
Conclusion
Section
17 of the CGST Act is pivotal in maintaining the integrity and efficiency of
the GST system by ensuring that ITC is claimed only for legitimate business
purposes. By clearly delineating the circumstances under which ITC can be
availed and specifying the cases where it is blocked, this section helps
prevent misuse and ensures that the benefits of ITC are enjoyed only by those
engaged in genuine business activities. For businesses, understanding and
adhering to the provisions of Section 17 is essential for compliant and
efficient tax management.
