Generally the input tax credit eligibility is based on whether the same is used for taxable supplies or exempt supplies. Where the goods or service is used for both taxable and exempted supplies, only proportionate credit is eligible to registered person only with respect to taxable supplies. It is to be noted that Zero rated supplies are taxable supplies and any input goods or services used for giving such outward supplies would be eligible for credits.
ITC based on use in furtherance in business
Input Tax credit used for business purposes will be declared as eligible Input Tax Credit and those used for other purposes will not be able to claim as input tax credit except blocked credit, which are specifically provided separately.
Ineligible Input Tax Credit/Blocked Credits
Input Tax credit shall not be available in respect of the following:-
(i) Motor vehicle and other conveyance except when they are used for making the following taxable supplies, namely-
(a) Further supply of such vehicles or conveyances
(b) Transportation of passenger or
(c) Imparting training on driving, flying, navigating such vehicles or conveyances
(ii) Motor vehicle and other conveyance except used for transportation of goods
(iii) Supply of goods and/or services such as -
(a) Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such supply of goods or services of each category is used for making an outward taxable supply of the particular category of goods or services or both or as an element of a taxable composite or mixed supply.
(b) Membership of a club, health and fitness centre
(c) Rent-a-cab, life insurance, health insurance except where it is notified by the Government as obligatory for an employer to provide to its employees under any law for the time being in force; or 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; and
(d) Travel benefits to employees on vacation i.e. leave or home travel concession.
(iv) Works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is for further supply of works contract service;
It is important to note that credit of GST paid on works contract services will be allowed only if the output is also works contract services.
(v) Goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even though it is used in course or furtherance of business;
'Construction' includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. Please note that 'alterations’ and 'repairs’ are also included in this definition.
(vi) Goods or services or both on which the tax paid under composition scheme.
(vii) Goods or services or both received by a non-resident taxable person except on goods imported by him.
(viii) Goods or services or both used for personal consumption.
(ix) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
(x) Tax paid in terms of
Section 74: Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful misstatement or suppression of facts.
Section 129: Detention, seizure and release of goods and conveyances in transit.
Section 130: Confiscation of goods or conveyances and levy of penalty.
Question: 1 What do you mean by 'Plant and Machinery’?
Solution: The expression plant and machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes
(i) Land, building or any other civil structures;
(ii) Telecommunication towers; and
(iii) Pipelines laid outside the factory premises.
Question: 2 Whether taxes paid on change of interiors of service apartment is eligible for input tax credit?
Solution: Input tax credit is not available on 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. The word construction includes reconstruction, renovation, additions or alterations or repairs to the extent of capitalization to the said immovable property. If the cost of interiors is capitalized towards the cost of immovable property then it forms part of the cost of immovable property (Service apartment) and accordingly taxes paid on change of interiors of service apartment will not be eligible as input tax credit.
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