Input Tax Credit under GST: Negative List

Legal Suvidha, Compliance Solution Providers

Input tax credit will not be available in respect of the following:

(A)  Motor Vehicles and other Conveyances

However credit in respect of motor vehicles and other conveyances would be available in the following cases:

When these are used for

• making the following taxable supplies, namely

-further supply of such vehicles or conveyances-

for example, a Trader in motor vehicles purchases motor vehicles and supplies them in usual course of his business. He shall be eligible to claim credit of GST paid on purchase of vehicles ; or

-transportation of passengers; or

-imparting training on driving, flying, navigating such vehicles or conveyances;

• transportation of goods

(B) Goods and services provided in relation to

• food and beverages
• outdoor catering
• beauty treatment
• health services
• cosmetic and plastic surgery

But the input tax credit will be available in case where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services or as an element of taxable Composite or Mixed Supply.

For example, Services of a Beautician taken by a beauty parlour or as an element of a taxable composite or mixed supply  would be eligible to claim credit of GST charged by the beauticians.

XYZ Company take the services of a caterer, Ganga Caterers, for Diwali Celebration event for its employees. XYZ Company cannot avail ITC on the catering service, as their business activity is not catering service.

• membership of a club, health and fitness centre,
• rent-a-cab, life insurance, health insurance except

-where 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.

For Example: A factory buys health insurance for all employees as per requirements defined by Factories Act. In this case, ITC will be available even though such insurance is for personal benefit of employees while being a requirement of law

-where 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

• travel benefits extended to employees on vacation such as leave or home travel concession

(C) Work Contract Service

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.

For Example: Tax paid by sub-contractor for construction of a factory administration building is available as credit to the main contractor for payment of its liability, however the tax paid by the main contractor will not be available to the factory owner / manufacturer.

Works Contract has been defined under Section 2(119),

“Works Contract” means

• a contract
• wherein transfer of property in goods is involved
• in the execution of such contract
• and includes contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance, renovation, alteration or commissioning
• of any immovable property

If the result of works contract is plant and machinery, then credit remains available

(D) Goods received for use in construction

• Goods or services received by a taxable person
• for construction of an immovable property
• on his own account,
• other than plant and machinery,
• even when used in course or furtherance of business

For the purpose of this section:

The word “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.

‘Plant and Machinery’ means apparatus, equipment, machinery, pipelines, telecommunication tower fixed to earth by foundation or structural support that are used for making outward supply and includes such foundation and structural supports but excludes land, building or any other civil structures 

(E) Goods and/or services on which tax has been paid under the Composition Levy under section 10

For Example: Jagdamba Departmental Store is registered as a composition tax payer under GST. It purchases grocery items from the manufacturer for Rs.30,000 and GST is charged @ 12% amounting to Rs.3,600. As Jagdamba Departmental Store is registered as a composition tax payer, it cannot avail ITC of Rs.3,600 on the purchase. This GST paid will become part of their material cost.

(F) Goods or Services or both received by a non-resident taxable person except on goods imported by him

(G) Goods and/or services used for personal consumption;

For Example: Pooja Garments Pvt Ltd purchased garments for Rs. 40000 from the manufacturer. GST paid on the purchase is Rs. 7200. Out of the garments purchased, garments worth Rs.5,000 is taken by the owner for his personal use. The remaining garments are sold to customers. Here, the ITC to be availed on the purchase is Rs.6,300 (35,000 *18%).

(H) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples

For Example: Where A company distributes free samples for promotion of its products in the market. In this case input tax credit shall not be available for the product distributed as free sample.

(I) Any tax paid in terms of sections 74, 129 or 130.

No input tax credit shall be available where:

• Tax has not been paid or short paid or erroneously refunded by reason of fraud or any wilful-misstatement or suppression of facts under section 74,or
• The goods and conveyances in transit are liable to Detention and seizure due to contravention of the provisions of this Act and are released on payment of prescribed tax and penalty under section 129,or
• Goods and/or Conveyance are liable to confiscation and levy of penalty under section 130.