Section 17(5) of the CGST Act, 2017 prescribes the list of blocked credits and this lists allows the ITC on few goods and services on conditional basis.
The relevant part of section 17(5) reads as follows:-
"(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;"
Thus, ITC is not allowed "in respect of" motor vehicles and other conveyances except in specified cases. There has been a lots of discussion on the phrase "in respect of" as used in the above clause. Some experts are of view that it has wider impact and covers all the goods and services that are relatable to motor vehicles. The other school of thought is of the view that this phrase is very restricted and is limited to ITC on the purchase of motor vehicles.
Earlier the twitter reply by department clarified that the credit on repair and maintenance of vehicle will not be allowed. However, recently, the government has given clarification on this aspect by issuing FAQ. This clarification has been given as follows:-
"Whether GST paid on insurance and repairs on vehicles is allowed, when vehicles is used for Business purpose only? ITC is allowed."
Thus, Government is also changing its stand. The Government has taken restricted meaning of phrase "in respect of" in recent clarification and has clarified that the restriction contained in this clause will be restricted to purchase of motor vehicle only. All the other related activities will be outside the purview of this restriction. Thus, going by this clarification, all the other services that are related to motor vehicles are admissible as input tax credit. It is worthwhile to mention here that these FAQs have no legal validity, but since the language has different interpretations; we can definitely follow the same.
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