CGST §17 — Apportionment of credit and blocked credits

ITC is APPORTIONED when inputs are used partly for business / partly for personal use, or partly for taxable / partly for exempt supplies (Rule 42 / 43). BLOCKED CREDITS under §17(5): motor vehicles ≤ 13 persons, food / beverages, club membership, beauty treatment, life / health insurance, works contract for immovable property, goods lost / destroyed / written off / given as gift / free samples.

Key points

• §17(1) bars ITC on goods or services used PARTLY for business and partly for OTHER PURPOSES — only the business portion is eligible.
• §17(2) bars ITC where inputs are used partly for EFFECTING TAXABLE supplies (including zero-rated) AND partly for effecting EXEMPT supplies — only the taxable proportion is allowed.
• The apportionment mechanism is in Rule 42 (inputs / input services) and Rule 43 (capital goods).
• §17(5) — BLOCKED CREDITS — bars ITC notwithstanding §16(1) / §18(1) on: (a) MOTOR VEHICLES for transport of persons with seating capacity ≤ 13 (including driver) — exceptions: further supply, transportation of passengers, driving school training;
• (b) VESSELS and AIRCRAFT — exceptions: further supply, transport of passengers, training, transport of goods;
• (c) services of insurance, servicing, repair, maintenance of motor vehicles / vessels / aircraft covered in (a) / (b);
• (d) FOOD AND BEVERAGES, outdoor catering, beauty treatment, health services, cosmetic / plastic surgery, leasing / renting / hiring of motor vehicles for transport of persons — UNLESS used to make outward supply of same category OR an employer is OBLIGATED BY LAW to provide;
• (e) MEMBERSHIP of CLUB, health / fitness centre;
• (f) RENT-A-CAB, life insurance, health insurance — UNLESS obligated by law for employer OR used to make outward supply of same category;
• (g) TRAVEL benefits to employees on vacation (LTC);
• (h) WORKS CONTRACT services for construction of IMMOVABLE PROPERTY (other than plant and machinery) — exception: input service for further supply of works contract;
• (i) goods / services for CONSTRUCTION OF IMMOVABLE PROPERTY (other than P&M) on own account;
• (j) goods / services on which COMPOSITION TAX has been paid under §10;
• (k) goods / services received by a NON-RESIDENT TAXABLE PERSON except on imported goods;
• (l) goods / services used for PERSONAL CONSUMPTION;
• (m) goods LOST, STOLEN, DESTROYED, WRITTEN OFF or disposed by way of GIFT or FREE SAMPLES;
• (n) any TAX PAID under §74 (fraud), §129 (detention), §130 (confiscation) — bars ITC on penalty-related payments.
• §17(3) bars ITC on EXEMPT supplies (includes non-taxable supply, transactions in securities, sale of land + building post completion certificate).

Reference: §17 CGST Act 2017 read with Rules 42 and 43