🌟 INTRODUCTION TO GST & ITC

●​ GST (Goods and Services Tax) follows the Value Added Tax system, meaning tax is paid
only on the value added at each stage.​

●​ When someone buys goods/services, they pay tax. Later, when they sell those
goods/services, they collect tax.​

●​ The tax paid on purchases is called Input Tax, and the tax collected on sales is called
Output Tax.​

●​ The difference between the two is paid to the government after setting off the input tax
from output tax. This is called Input Tax Credit (ITC).​

📘 12.2 MEANING OF INPUT TAX CREDIT

✅ Definition:
●​ Input Tax Credit (ITC) means the credit of GST paid on goods or services used for
business.​

●​ A registered person can deduct this tax (paid on purchases) from the tax collected on
sales.​

✅ Example:
●​ Mr. Arun (a registered wholesaler in Delhi) bought goods worth ₹10,000.​

○​ Paid: CGST ₹600 + SGST ₹600​

●​ Sold goods for ₹12,000 (profit ₹2,000).​

○​ Collected: CGST ₹720 + SGST ₹720​

●​ ITC available: ₹600 CGST + ₹600 SGST​

 ●​ Final Tax Payable after ITC:​

○​ CGST = ₹720 - ₹600 = ₹120​

○​ SGST = ₹720 - ₹600 = ₹120​

📘 Box 12.1: Legal Definitions

🔹 Section 2(63), CGST Act:
●​ Input Tax Credit = credit of input tax.​

🔹 Section 2(62), CGST Act:

●​ Input Tax = GST paid on purchases.​

●​ Includes:​

○​ IGST on imports​

○​ GST under reverse charge under Section 9(3) and 9(4) of CGST Act​

○​ Reverse charge under IGST Act, SGST Act, UTGST Act​

●​ ❌ Does not include tax under composition scheme​

📘 12.3 SET-OFF RULES OF INPUT TAX CREDIT (Rule

88A & Section 49)
1️⃣

Use IGST Credit First:

●​ Use IGST credit to pay IGST first.​

 ●​ If any balance is left, use for CGST or SGST/UTGST (in any order).​

2️⃣

Use CGST Credit:

●​ Use for CGST first.​

●​ If balance remains, use for IGST.​

●​ ❌ Cannot be used for SGST or UTGST.​

3️⃣

Use SGST Credit:

●​ Use for SGST first.​

●​ Then for IGST only if CGST credit is fully used.​

●​ ❌ Cannot be used for CGST.​

4️⃣

Use UTGST Credit:

●​ Use for UTGST first.​

●​ Then for IGST only after CGST credit is fully used.​

●​ ❌ Cannot be used for CGST.​

⚠️ Restrictions to Remember:
🔴 Restriction 📌 Rule
 CGST credit ➡️ SGST/UTGST ❌ Not allowed

SGST/UTGST credit ➡️ CGST ❌ Not allowed

SGST (State A) ➡️ SGST (State B) ❌ Not allowed

UTGST (UT A) ➡️ UTGST (UT B) ❌ Not allowed

Here are super easy and brief revision notes for Section 16 of CGST Act + Rule 36, 37 & 86A
on Eligibility Conditions for Input Tax Credit (ITC) — covering everything important in a
memory-friendly way for exam revision:

✅
Basic Rule: Who Can Take ITC?

1.​ Only Registered Person can take ITC.​

❌
​
→ Unregistered person ​

❌
​
→ Composition scheme person ​

2.​ Person includes individuals, companies, firms, HUF, LLP, government, trusts, etc. (Sec
2(84))​

3.​ Registered Person means registered under Sec 25 (but not UIN holders). (Sec 2(94))​

✅
Conditions for Availing ITC (Sec 16(1) & 16(2))

4.​ ITC allowed only if used for business.​

​
 → Example: Laptop for personal use ❌; For business ✔️​
5.​ Must have valid documents (Invoice, Debit Note, Bill of Entry) with:​

○​ GSTIN of supplier & receiver​

○​ Description​

○​ Tax amount​

○​ Value​

○​ HSN code​

○​ Place of supply (for IGST)​

6.​ Must receive goods/services.​

​
→ Goods received in parts → ITC allowed after last instalment.​

7.​ ITC must not be restricted in GSTR-2B (auto-generated statement).​

8.​ Supplier must have paid tax to govt (cash or ITC).​

9.​ Supplier must file GSTR-1/GSTR-5/GSTR-6, so that ITC appears in recipient’s

GSTR-2B.​

✅
Matching & Filing Rules (Rule 37A)

10.​Match Purchase Register with GSTR-2B.​

11.​Supplier must file GSTR-3B by 30th Sept (after FY end).​

​
→ If not filed → ITC to be reversed by 30th Nov, else interest @18%​

12.​If supplier files later → recipient can reclaim ITC in future GSTR-3B.​
✅
180-Day Rule (Sec 16(2) Proviso)

13.​Buyer must pay supplier within 180 days.​

​
→ If not paid, ITC will be reversed with interest​
​
→ Can reclaim ITC after payment​

✅
ITC Allowed on Goods Delivered to Another Person (Explanation to Sec
16(2)(b))

14.​If goods are delivered to a transporter/agent on buyer’s direction, ITC is allowed.​

✅
Capital Goods (Sec 16(3))

15.​If depreciation is claimed on tax part of capital asset, no ITC on that tax amount.​

✅
Time Limit to Avail ITC (Sec 16(4))

16.​ITC not allowed:​

●​ After 30th Nov following FY​

​
OR​

●​ Date of filing Annual Return​

​
 Whichever is earlier​

●​ Also, ITC not allowed after 1 year from invoice date.​

✅
No ITC Allowed in Fraud Cases

17.​Fraud, wilful misrepresentation, suppression of facts → ❌ ITC​

✅
Blocking of ITC (Rule 86A)

18.​Commissioner can block ITC up to 1 year, if:​

●​ Supplier or recipient is fake/non-existent​

●​ Goods/services not received​

●​ Tax not paid​

●​ No proper documents​

📌 Blocking reasons must be in writing

✅
Latest Update (Notification 22/2024)

19.​If ITC was disallowed under Sec 73/74 (wrong availment), but no appeal filed, person
can claim ITC under Sec 16(5) or 16(6).​
✅
Rule 36 Revision

20.​No ITC allowed on confirmed demands involving fraud/misrepresentation under Sec 74.

Here is a well-structured, easy-English, complete and exam-ready summary of Section 17(5):

Blocked/Ineligible Input Tax Credit (ITC) from the CGST Act, as per your syllabus:

📚
12.7 BLOCKED CREDITS / INELIGIBLE
INPUT TAX CREDIT (Section 17(5) of CGST
Act)
Section 17(5) of the CGST Act lists those cases where ITC is not allowed, even if the
goods/services are used for business. This is called Blocked ITC.

✅
1. Motor Vehicles (Seating Capacity ≤ 13 persons)
Blocked ITC on motor vehicles (seating ≤13 including driver), except when used for:

●​ (i) Further supply of such motor vehicles (i.e., sale)​

●​ (ii) Transportation of passengers​

●​ (iii) Training in driving such motor vehicles​

Amendment 2018: Earlier, no ITC on any motor vehicle. Now blocked only for ≤13 seating
capacity.
✅
Also Blocked on Leasing/Hiring of such motor vehicles

, unless used for the above 3 purposes.

🧾
Example 1:

If a motor vehicle with more than 13 seats is used to transport employees, ITC is not allowed.
(Used for employee facility, not public transport)

🧾
Example 2:

If trucks, dumpers, tippers, etc. are used for goods transportation, ITC is allowed.

🚗
2. Demo Vehicles Used by Dealers
✅
ITC is Allowed

if:

●​ Used for test drives and product demonstrations​

●​ Treated as capital goods​

●​ Purpose: Further supply of same kind of vehicle (i.e., sale)​

Hence, demo vehicles used in business are eligible for ITC.

❌
ITC is Not Allowed

if:

●​ Used for staff transportation or management purposes​

●​ Even if capitalized, if depreciation is claimed on tax part under Income Tax Act, ITC is
not allowed (Section 16(3))​

✈️🛥️
3. Vessels and Aircraft
ITC is not allowed, except when used for:

1.​ Further supply (sale)​

2.​ Transport of passengers​

3.​ Training (navigation or flying)​

4.​ Transport of goods​

❌ ITC is also blocked on leasing/renting/hiring of such vehicles except for the above uses.

🛠️
4. Services of Insurance, Servicing, Repair & Maintenance
ITC not allowed on:

●​ Servicing, repairs, or insurance of blocked vehicles (motor/vessels/aircraft),​

​
 ❌ except when:​
○​ Used for further supply​

○​ Composite/mixed supply where it’s part of the outward supply​

🧾
Insurance Companies

They can avail ITC if:

●​ Invoice of repair is in insurance company’s name​

●​ Repair amount is reimbursed (not personal consumption)​

❌ Vehicle owners cannot claim ITC – it is blocked credit for them.

🍔
5. Food, Catering, Beauty & Health Services
ITC is not allowed on:

●​ Food & beverages​

●​ Outdoor catering​

●​ Beauty treatment​

●​ Cosmetic/plastic surgery​

●​ Health services​

✅
Allowed only if:
 ●​ You supply the same service​

●​ Services are made mandatory by government (for employees)​

🧾
Example:

If a catering company outsources catering from another dealer, ITC is allowed as both are in
same line of business.

⛹️‍♀️
6. Club Membership / Health & Fitness Centres
ITC is not allowed for:

●​ Club membership​

●​ Health & fitness centres​

🧳
7. Travel Benefits to Employees (Vacation/Leave)
ITC not allowed on:

●​ Leave Travel Concession (LTC)​

●​ Vacation packages for employees​

🧱
8. Works Contract Services (Construction etc.)
ITC not allowed on works contract services used for:

●​ Construction​

●​ Renovation​

●​ Alteration​

●​ Repairs of immovable property (other than plant & machinery)​

✅
Allowed only if:

●​ It is an input service for further supply of works contract​

🧾 Example:
If a builder hires a contractor to construct his own office, ITC is not allowed.

But if a construction company hires a subcontractor, ITC is allowed.

🏗️
9. Construction of Immovable Property (Own Use)
ITC is not allowed on:

●​ Goods/services used to build/renovate an office/property,​

​
even if for business purpose (unless it’s plant & machinery)​

✅ ITC allowed only for plant & machinery like an air conditioner.
🧮
10. Composition Scheme Dealers
ITC is not allowed on goods/services taxed under composition scheme.

🌍
11. Non-Resident Taxable Person (NRTP)
ITC is not allowed to NRTPs except on imported goods.

🧍
12. Personal Use
Goods/services used for personal use – ITC is not allowed.

❌
13. Lost, Stolen, Destroyed Goods / Free Samples
No ITC on goods:

●​ Lost or stolen​

●​ Destroyed​

●​ Given as gifts or free samples​

🚨
14. Fraud / Tax Penalties
ITC is not allowed for:

●​ Tax paid after fraud, misstatement, suppression​

●​ Tax paid for e-way bill violations​

●​ Tax paid after confiscation or penalties​

❤️
15. Life/Health Insurance & Beauty Treatment
ITC not allowed, unless:

●​ Services are notified by Govt. (e.g., employer has to give insurance)​

●​ Or when used to make outward taxable supply​

Thank you, Siya! Here’s a brief and easiest-English note on the “Manner of Utilisation of Input
Tax Credit (ITC)” for your GST exam:

✅
Manner of Utilisation of ITC
(As per Section 49 of CGST Act and Rule 88A)

💡
3 Types of ITC:

1.​ IGST Credit​

2.​ CGST Credit​

3.​ SGST/UTGST Credit​

📘
Step-by-Step Utilisation Rule:

🔹
1. IGST Credit

●​ 1st: Use for IGST liability​

●​ 2nd: Then for CGST liability​

●​ 3rd: Then for SGST/UTGST liability​

✅ IGST credit is used first in all cases.

🔹
2. CGST Credit

●​ 1st: Use for CGST liability​

●​ 2nd: Then for IGST liability​

🚫 Cannot be used for SGST/UTGST liability

🔹
3. SGST/UTGST Credit
 ●​ 1st: Use for SGST/UTGST liability​

●​ 2nd: Then for IGST liability​

🚫 Cannot be used for CGST liability

📌
Important Rule: Rule 88A

●​ IGST credit can be used fully for IGST, CGST, and SGST in any order, but IGST must be
used first before using CGST or SGST.​

✅
Quick Summary Table:

Credit Type 1st Preference 2nd Preference ❌ Cannot be used

for

IGST IGST CGST or SGST -

CGST CGST IGST SGST/UTGST

SGST/UTGST SGST/UTGST IGST CGST