GST Credit on Motor Vehicle -
Specific cases are mentioned under GST where no input tax credit shall be available to the applicant.
Section 17(5) reads as follows
(5) Not withstanding 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 the transportation of goods;
ITC will be available when the vehicle is used for the following.
a) Supply of other vehicles or conveyances
If you are in the business of supplying cars then ITC will be available.
For example, a car dealer purchases a car for Rs.50 lakh plus 14 lakh GST (ignoring cess calculations). The same car was later sold for 70 lakhs along with Rs.19.60 lakh GST. Since he is a dealer, he can claim ITC of 14 lakhs and pay only Rs.5.60 lakh (19.60 – 14).
b) Transportation of passengers
If you are providing transportation of passengers then ITC will be allowed on the vehicle purchased.
For example, Happy Tours purchased a bus for inter-city transport of passengers. ITC is available.
c) Imparting training on driving, flying, navigating such vehicle or conveyances
A driving school purchases a car to give training to students. The school can claim ITC on the GST paid on the car.
d) Transportation of goods
ITC will be allowed on motor vehicles (and other conveyances) used to transport goods from one place to another. However, this is concerning other transporters and not goods transport agencies (GTA).
Question 1:Company A is in Trading/Manufacturing Business. They have purchased a truck to transport goods to its customers. Can it avail the credit of GST it has paid on such Vehicle purchased?
Answer1: As per my view the credit can be availed as the Vehicle is used for Transportation of goods. Therefore the same is in compliance with the exception provided by Section 17(5).
Question 2: Company A also purchased a car for use by its employees in the discharge of their duties or otherwise. Can it avail the credit of GST it has paid on such car purchased?
Answer2:The answer is No as the car purchased is not used for any of the purposes specified above that is neither the car is used for further sale(as Company A is in Trading of goods) nor Company A is in business of Transportation of passengers nor Company A is business of imparting training of driving such Car and nor the car is used in Transportation of goods. As none of the condition is fulfilled, there is no GST Credit availability.
Question 3: Now the third question that may come to ones mind is that whether GST credit of repair/insurance of the above said truck or car available?
Answer 3: As per my view the GST credit of repair /insurance of the Truck shall be available but not of the car.In support of my view, I shall depend on the wording of Section 17(5) which says ‘’tax credit shall not be available in respect of following, namely………..”The words in respect of shall include purchase, repair, insurance and all related expenses to such vehicle or conveyance. So if credit is available of GST on Vehicle purchased, then Credit on all expenses related to that vehicle shall be available. Further, if credit is not available of GST on Vehicle purchased, the credit on all expenses related to that vehicle shall also be blocked.
2. Food, beverages, club memberships and others
ITC is not for the supply of following goods or services or both:
• Food and beverages
• Outdoor catering
• Beauty treatment
• Health services
• Cosmetic and plastic surgery
However, ITC will be available if the category of inward and outward supply is same or the component belongs to a mixed or composite supply under GST.
Examples-
Ajay Enterprises arranges for an office party for its employees. Ajay Enterprises will not be able to claim ITC on the food & beverages served.
3. Sale of membership in a club, health, fitness center
No ITC will be allowed on any membership fees for gyms, clubs etc.
Example-
Ravi, a Managing Director has taken membership of a club and the company pays the membership fees. ITC will not be available to the company or Mr. Ravi.
4. Rent-a-cab, life insurance, health insurance
ITC is not available for rent-a-cab, health insurance and life insurance.
However, the following are exceptions, i.e.,
ITC is available for-
a. Any services which are made obligatory for an employer to provide its employee by the Indian Government under any current law in force
For example, assuming the government passes a rule for all employers to provide mandatory cab services to female staff in night shifts. Joy Ltd. hires a rent-a-cab to provide to transportation to its female staff on night shifts. Then ITC will be available to Joy Ltd. on the GST paid to the rent-a-cab service.
b. If the category is same for the inward supply and outward supply or it is a part of the mixed or composite supply
For example, ABC Travels lends out a car to XYZ Travels. Then XYZ Travels can claim ITC on the same.
Read our article on GST impact on cab services.
5. Travel
ITC is not available in the case of travel, benefits extended to employees on vacation such as leave or home travel concession.
For example,
ABC Ltd. offers a travel package to its employees for personal holidays. ITC on GST paid by ABC Ltd. for the holiday package will not be allowed.
ITC will be allowed for travel for business purposes. Please read our article to know more about the impact of GST on air fare and rail fare.
6. Works contract
ITC shall not be available for any work contract services. ITC for the construction of an immovable property cannot be availed, except where the input service is used for further work contract services.
For example, XYZ Contractors are constructing an immovable property. They cannot claim any ITC on the works contract. However, XYZ hires ABC Contractors for a portion of the works contract. XYZ can claim ITC on the GST charged by ABC Contractors.
Please read our article on GST impact on works contract.
7. Constructing an immovable property on own account
No ITC is available for goods/services for construction of an immovable property on his own account. Even if such goods/services are used in the course or furtherance of business, ITC will not be available.
But this rule does not apply to plant or machinery. ITC is available on inputs used to manufacture plant and machinery for own use.
Example-
• Ajay Steel Industries constructs an office building for its headquarters. ITC will not be available.
• Ajay Steel Industries also constructs a blast furnace to manufacture steel. ITC is available since it is a plant.
8. Composition Scheme
No ITC would be available to the person who has made the payment of tax under composition scheme in GST law.
Please read our extensive guides on composition scheme under GST and whether you are eligible for it.
9. No ITC for Non-residents
ITC cannot be availed on goods/services received by a non-resident taxable person. ITC is only available on any goods imported by him.
Please read our articles on GST on non-residents and the registration process for non-residents.
10. No ITC for personal use
No ITC will be available for the goods/ services used for personal purposed and not for business purposes.
Find out more on how to calculate the amount of common credit applicable for business if you use the same input for both business and personal uses.
11. Free samples and destroyed goods
No ITC is available for goods lost, stolen, destroyed, written off or given off as gift or free samples.
12. No ITC in fraud cases
ITC will not be available for any tax paid due to fraud cases which has resulted into –
1. Non or short tax payment or
2. Excessive refund or
3. ITC utilised or
Fraud cases include fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.
13. No ITC on restaurants
As per Notification No. 46/2017-Central Tax (Rate), dated 14th November 2017, standalone restaurants will charge only 5% GST but cannot enjoy any ITC on the inputs.
However, restaurants as part of hotels with room tariffs exceeding Rs. 7,500 still continue pay 18% GST and enjoy ITC.
McDonald’s charges 5% GST and cannot claim any ITC.
Taj’s Grill by the Pool restaurant in Kolkata is a part of the Taj Bengal hotel and so it will charge 18% GST while enjoying ITC.
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