Block Credit Under GST With Important Case Laws

One of the most significant features of the Goods and Services Tax regime is the seamless flow of Input Tax Credit (ITC). However, the GST law also lays down certain restrictions where ITC is not allowed, known as “blocked credits”.

These blocked credits are governed under Section 17(5) of the CGST Act, 2017.

Legal Provision – Section 17(5) of CGST Act, 2017- This section restricts the availment of ITC on certain goods and services, regardless of whether they are used in the course or furtherance of business.

Categories of Blocked Credit are as follows-

• Motor vehicles (including vessels and aircraft) for transportation of persons & services of general insurance, servicing, repair and maintenance thereto (Section 17(5)(a),(aa), (ab))

• Food and beverages, outdoor catering, beauty treatment, health services etc. (Section 17(5)(b))

• Membership of a club, health and fitness centre; (Section 17(5)(b))

• Travel benefits extended to employees on vacation such as leave or home travel concession (Section 17(5)(b))

• Works contract services (Section 17(5)(c))

• Goods or services for Construction of Immovable Property (other than plant and machinery) (Section 17(5)(d))

• Goods or services or both on which tax has been paid under section 10; (Section 17(5)(e))

• Goods or services or both received by a non-resident Taxable person except on goods imported by him (Section 17(5)(f))

• Goods or services or both received by a Taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013 (Section 17(5)(fa))

• Goods or services or both used for personal consumption (Section 17(5)(g))

• Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples (Section 17(5)(h))

• Any tax paid in accordance with the provisions of section 74 in respect of any period up to Financial Year 2023-24 (Section 17(5)(i))

Motor vehicles (including vessels and aircraft) for transportation of persons & services of general insurance, servicing, repair and maintenance thereto (Section 17(5)(a),(aa)& (ab))

Clause (a) of Section 17(5) of CGST Act provides that input tax credit shall not be available in respect of Motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver), except when they are used for making following taxable supplies, namely:

A. further supply of such motor vehicles; or

B. transportation of passengers; or

C. imparting training on driving such motor vehicles.

From the above, it is seen that Input Tax Credit is not available in respect of Motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver).

In other words, input tax credit on motor vehicles used for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), can be availed only when such motor vehicles are (i) supplied further, or (ii) used for transportation of passengers, or (iii) used for imparting training on driving such motor vehicles.

Judicial Insights & clarifications

Refer decision of TAMIL NADU-AAR in matter of A2mac1 India Private Limited [2024] 79 TAXLOK.COM 188 (AAR-Tamil Nadu), wherein the authority denied input tax credit (ITC) for Motor vehicles used in automobile benchmarking. It ruled that such vehicles, later sold as scrap, do not meet the exceptions under Section 17(5)(a) of the CGST/TNGST Act, 2017.

Refer decision of TELANGANA-AAR in matter of Sai Service Pvt. Limited [2023] 63 TAXLOK.COM 008 (AAR-Telangana), wherein it was held that, the applicant is not entitled to avail the input tax credit charged on inward supply of motor vehicle which are used for demonstration purpose in the course of business of supply of motor vehicle as input tax credit on capital goods.

Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of Motor vehicles, vessels or aircraft, life insurance and health insurance (Section 17(5)(b))

Section 17(5)(b) serves to prevent misuse of ITC on personal/employee-related expenses which are not directly linked to taxable output supplies. However, businesses in the same line of service or those under legal mandate have conditional access to ITC.

Section 17 (5) allows ITC on food, beverages and outdoor catering only in case it is obligatory under any law for the time being in force. Thus, applicant is eligible for ITC on the food supplied by food vendor to contractual worker and is not blocked under Section 17(5) (b) of the Act.

Judicial Insights

Refer decision of GUJARAT-AAR in matter of Eimco Elecon India Limited [2023] 63 TAXLOK.COM 097 (AAR-Gujarat), wherein it was held that GST, is not leviable on the amount representing the employees portion of canteen charges, which is collected by the applicant and paid to the CSP. ITC on GST paid on canteen facility is not admissible to the applicant under Section 17(5)(b) of CGST Act, 2017, on the food supplied to contractual worker supplied by labour contractor.

Refer decision of TAMIL NADU-AAR in matter of Access Healthcare Services Private Limited [2023] 61 TAXLOK.COM 103 (AAR-Tamil Nadu), wherein it was held that, the applicant is entitled to avail ITC on the tax paid towards leasing/renting/hiring of Motor vehicles for providing transport facilities to women employees alone, who are arriving or leaving workplace between 8.00 p.m to 6.00 a.m. ITC can be availed with effect from 28.05.2019 subject to the provisions of section 16 of the CGST/ TNGST Act, 2017.

Membership of a club, health and fitness centre; (Section 17(5)(b))

The GST law intends to allow ITC only when directly linked to outward taxable supply. Membership of clubs or fitness centers is generally personal in nature, and not essential to business operations.

Judicial Insights

Travel benefits extended to employees on vacation such as leave or home travel concession (Section 17(5)(b))

Travel benefits provided for personal reasons (not business travel) are not business expenses for the purpose of ITC.

Such travel is seen as non-business expenditure, even if incurred by the company, and hence not eligible for input tax credit.

Works contract services (Section 17(5)(c))

Under Section 17(5)(c) of CGST Act, Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of Works contract service are not eligible for input tax credit.

Judicial Insights

Refer decision of TAMIL NADU-AAR in matter of J.K. Fenner (India) Limited [2023] 61 TAXLOK.COM 108 (AAR-Tamil Nadu), wherein it was held that, the GST paid on works contract for carrying out repair of factory building shall be available for ITC to the extent to which the said expense is not capitalized to the said immovable property as per section 16(1) but subject to the provision under Section 17(5).

Goods or services for Construction of Immovable Property (other than plant and machinery) (Section 17(5)(d))

under Section 17(5)(d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business are also not eligible for input tax credit.

Explanation––For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property.

Judicial Insights

Refer decision of KERALA HIGH COURT in case of Lulu International Shopping Malls Pvt. Ltd. V/s Joint Commissioner [2025] 80 TAXLOK.COM 116 (Kerala), wherein the petitioner challenged an order under Section 73 of the CGST Act, disallowing input tax credit (ITC) on Works contract services for constructing shopping malls. The court found that the respondent had failed to apply the Supreme Court's ruling in the Safari Retreats case, which clarified the treatment of immovable property as plant and machinery under Section 17(5). The impugned order is set aside and remanded for reconsideration in light of this precedent.

Refer decision of SUPREME COURT OF INDIA in case of Safari Retreats Private Ltd [2024] 77 TAXLOK.COM 001 (SC), wherein, SC upheld the constitutional validity of Section 17(5)(c) and (d) of the CGST Act, which blocks the input tax credit (ITC) on the construction of immovable property for leasing purposes. The court ruled that this exclusion does not violate Articles 14 and 19(1)(g) of the Constitution, as the classification has a rational basis and is consistent with the objectives of the GST law to avoid the cascading effect of taxes.

The Delhi High Court ruled that telecommunication towers are not immovable property and thus do not fall under Section 17(5)(d) of the CGST Act. The Court quashed tax demands and show-cause notices denying ITC, holding them inconsistent with legal principles and precedents. [2024] 79 TAXLOK.COM 089 (Delhi).

GUJARAT-AAAR in case of The Varachha Co. Op. Bank Ltd. [2023] 65 TAXLOK.COM 030 (AAAR-Gujarat), held that Taxpayer is not entitled to ITC of GST paid on Architect Service Fees and Interior Designing Fees in view of the provisions of Section 17(5)(d) of the CGST Act, 2017, however, ITC is admissible on roof solar plant.

Goods or services or both on which tax has been paid under section 10; (Section 17(5)(e))

Section 17(5)(e) serves a specific blocking function in the GST framework, ensuring that supplies made under the Composition Scheme do not generate ITC in the hands of recipients. This aligns with the simplified compliance intended under the scheme and maintains tax neutrality.

Goods or services or both received by a non-resident Taxable person except on goods imported by him (Section 17(5)(f))

Section 17(5)(f) aims to restrict ITC claims by non-resident taxable persons except in the case of imports. This aligns with the policy of allowing ITC only for genuine business use and ensures proper tax compliance by foreign entities with temporary presence in India.

Goods or services or both received by a Taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013 (Section 17(5)(fa))

Judicial Insight

Refer decision of GUJARAT-AAAR in case of Adama India Private Limited, wherein it was held that CSR activities, as per Companies (CSR Policy) Rules, 2014 are those activities excluded from normal course of business of the applicant and therefore not eligible for ITC, as per Section 16(1) of the CGST Act.

Goods or services or both used for personal consumption (Section 17(5)(g))

Section 17(5)(g) is a clear bar on availing ITC for any goods or services that are consumed for personal use, ensuring that the credit mechanism is restricted to business-related activities only. Proper classification and documentation are key to avoiding disputes under this provision.

Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples (Section 17(5)(h))

Section 17(5)(h) is an important anti-abuse provision under GST, ensuring that ITC is availed only on goods used for taxable output.

Judicial Insights

TELANGANA-AAR in case of Geekay Wires Limited, [2023] 64 TAXLOK.COM 021 (AAR-Telangana), held that When the raw materials purchased are already used in the manufacture of finished goods and the finished goods are destroyed in the fire accident completely, ITC is required to be reversed.

MADRAS HIGH COURT in case of Ars Steels and Alloy International Private Limited [2024] 77 TAXLOK.COM 154 (Madras), held that, the court dismissed the writ petitions challenging the denial of Input Tax Credit (ITC) on goods used for sales promotions and discrepancies in stock. It upheld that ITC is not available on items disposed of as gifts or free samples under Section 17(5)(h) of the CGST Act and found no basis to interfere with stock variation assessments.

Any tax paid in accordance with the provisions of section 74 in respect of any period up to Financial Year 2023-24 (Section 17(5)(i))

Section 17(5)(i) plugs a key loophole by blocking ITC on taxes paid due to fraud or suppression for earlier years.