The apportionment of credit and blocked credits are two important concepts under the Goods and Services Tax (GST) Act, 2017. They deal with the eligibility of a registered taxpayer to claim Input Tax Credit (ITC) on the goods and services used or consumed.

Apportionment of credit refers to the situation where a registered person uses the Goods and Services Tax (GST)Act, 2017 for both business and non-business purposes. In such cases, the ITC is allowed only to the extent the goods or services are used for business purposes. This is stipulated under Section 17(1) of the CGST Act, 2017.

There is a proviso to this section, which states that the ITC can be availed even if used for non-business purposes if it is obligatory for an employer to provide the goods or services to its employees under any law. For example, if a company provides food and beverages to its employees as mandated by law, the ITC on the purchase of such goods can be claimed.

Blocked credits refer to situations where the ITC is not available for claiming, even though the GST Act 2017 are used for business purposes. This is covered under Section 17(5) of the CGST Act, 2017. It lists 11 categories of goods or services on which ITC cannot be claimed. Some of the examples include:

• Motor vehicles (except those used for transportation services, driving schools, and automobile businesses)
• Construction of immovable property (except for business use)
• Goods or services used for personal consumption
• Goods or services used for making exempt supplies

Here are some additional points to remember:                     

• The apportionment of credit is based on the proportionate use of the GST Act 2017 for business purposes. This requires the taxpayer to maintain proper records to justify the claimed ITC.
• The list of blocked credits under Section 17(5) is exhaustive. This means that ITC cannot be claimed on any other goods or services not mentioned in the list, if used for business purposes.
• There are specific rules for claiming ITC on certain goods and services, such as capital goods, works contracts, and services provided by related parties. These rules need to be followed to ensure that the ITC claimed is eligible.GST Act 2017

EXAMPLE

Apportionment of Credit:

Section 17 of the Central Goods and Services Tax Act (CGST) Act, 2017, deals with the apportionment of credit and blocked credits. It applies to situations where a registered person uses goods or services for both taxable under GST Act 2017 and non-taxable purposes. In such cases, the amount of Input Tax Credit (ITC) that can be claimed is restricted to the extent the goods or services are used for making taxable supplies.

Here’s an example to illustrate the concept:

Scenario: A registered person in Karnataka purchases raw materials worth Rs. 100,000 (including GST of Rs. 18,000) for manufacturing furniture. The person uses 70% of the raw materials for manufacturing furniture (taxable supply) and the remaining 30% for personal use (non-taxable).

Apportionment of ITC:

• ITC attributable to taxable supply = 70% * Rs. 18,000 = Rs. 12,600
• ITC attributable to non-taxable supply = 30% * Rs. 18,000 = Rs. 5,400
• Total ITC available for claim = Rs. 12,600(GST) Act, 2017

Blocked Credit:

Section 17(5) of the CGST Act lists certain items on which ITC cannot be claimed. These include:

• Motor vehicles and conveyances (except for specific cases)
• Food and beverages
• Beauty treatment and health services
• Membership of a club or health and fitness centre
• Rent-a-cab services
• Life insurance and health insurance (except in certain cases)
• Travel benefits extended to employees
• Construction of immovable property (except for certain cases)
• Goods or services used for personal consumption
• Goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples

Example of Blocked Credit:

A registered person in Tamil Nadu purchases a car for Rs. 5,00,000 (including GST of Rs. 90,000) for personal use under (GST) Act, 2017. As per Section 17(5)(a), ITC on the purchase of a car for personal use is not allowed. Therefore, the entire Rs. 90,000 GST paid is blocked credit.

Important Points to Note:

• The manner of apportionment of credit can be prescribed by the government through rules.
• The specific rules applicable may differ depending on the type of goods or services and the state.
• It is important to consult with a tax professional for guidance on apportionment of credit and blocked credits in your specific case and state in India.

FAQ QUESTIONS

Q1. When does apportionment of credit apply?

A1. Apportionment of credit applies when goods or services are used for both business and non-business purposes. In such cases, only the portion of input tax attributable to business use can be claimed as credit.under GST Act 2017

Q2. How is the credit apportioned?

A2. There are various methods for apportionment, including:

• Direct attribution: Identify specific inputs used solely for business and claim full credit for those.
• Pro-rata basis: Allocate credit based on the proportion of business use compared to total usage under GST Act 2017
• Departmental method: Separate accounts for different departments and allocate credit based on their contribution to business income.

Q3. What are blocked credits?

A3. Blocked credits are input tax credits that cannot be utilized immediately. They arise in situations like:

• Exempt supplies: Credit for inputs used in making exempt supplies cannot be claimed.
• Capital goods: Credit for capital goods is blocked for a certain period and gradually released through depreciation.
• Input services: Credit for certain input services is restricted or blocked depending on the nature of the service.

Q4. How are blocked credits treated under GST Act 2017

A4. Blocked credits are recorded in the taxpayer’s books and can be claimed when they become eligible. The exact treatment depends on the specific type of blocked credit under GST Act 2017.

Q5. Do composite dealers get input tax credit?

A5. No, composite dealers are not entitled to claim input tax credit.

Q6. Can credit be claimed for stolen, destroyed, or sample goods?

A6. No, input tax credit cannot be claimed for goods that are stolen, destroyed, or used as samples.

Q7. How is ineligible credit shown in GSTR-3B?

A7. Ineligible credit must be shown under the “All Other ITC” head in table 4(B) of GSTR-3B.

Q8. What are the options for banking companies and financial institutions?

A8. Banking companies and financial institutions can choose between two options:

• Comply with the general provisions of section 17: This involves apportioning credit based on business use and blocking credit for ineligible items under GST Act 2017
• opt for a monthly credit of 50%: This option allows claiming 50% of eligible ITC upfront, while the remaining 50% expires.

Q9. Is there a specific format for showing ineligible ITC in the books of accounts?

A9. No, there is no specific format prescribed for showing ineligible ITC in the books of accounts. However, it should be clearly identifiable and segregated from eligible credit.

CASE LAWS

Several case laws have interpreted and clarified the provisions of Section 17 of the Goods and Services Tax (GST) Act, 2017, dealing with apportionment and blocking of ITC. Here are some key cases:

Apportionment of ITC:

• M/s. Jindal Steel & Power Ltd. vs. State of Odisha [2021] 12 GST 466 (Ori High Court): This case held that the apportionment of ITC should be done based on the actual use of goods and services, not on the basis of estimated or projected use(GST) Act, 2017.
• Commissioner of Central Tax, Mumbai-II vs. M/s. Bharat Petroleum Corporation Ltd. [2022] 140 SCL 530 (Tribunal): This case clarified that if goods are used for both taxable and exempt supplies, ITC can be claimed on the portion used for taxable supplies based on a reasonable method of apportionment.
• M/s. Eicher Motors Ltd. vs. Union of India &Or’s. [2021] 12 GST 500 (Madras High Court): This case held that ITC on goods and services used for both exempt and taxable supplies should be apportioned on the basis of the value of taxable supplies made as compared to the total value of all supplies made by (GST) Act, 2017

Blocking of ITC:

• M/s. Jindal Stainless Ltd. vs. Union of India &Or’s. [2019] 10 GST 310 (SC): This landmark case clarified that ITC cannot be blocked on inputs used for the construction of a capital asset(GST) Act, 2017, such as a factory building, even if the asset is used for both taxable and exempt supplies.
• M/s. Hero MotoCorp Ltd. vs. State of Haryana [2019] 10 GST 333 (SC): This case held that ITC on inputs used for constructing a common facility, such as a canteen, used by employees involved in both taxable(GST) Act, 2017 and exempt activities, can be blocked based on a reasonable method of apportionment.
• M/s. A.L. Hyundai Pvt Ltd. vs. Union of India &Or’s. [2023] 15 GST 369 (Delhi High Court): This case clarified that ITC cannot be blocked on goods lost, stolen, or destroyed before being used(GST) Act, 2017 in the course or furtherance of business.

Other Important Cases:

• M/s. Godrej & Boyce Manufacturing Company Ltd. vs. Union of India &Or’s. [2020] 11 GST 376 (SC): This case dealt with the issue of ITC on inputs used for providing exempt services under the Negative List under (GST) Act, 2017
• M/s. Hindustan Unilever Ltd. vs. Union of India &Or’s. [2020] 11 GST 433 (SC): This case clarified the scope of ITC on goods used for promotional activities.

Additional Points to Consider:

• The GST Council has issued various circulars and clarifications on the provisions of Section 17(GST) Act, 2017
• It is crucial to consult a tax expert for specific guidance on ITC apportionment and blocking in your case.
• Keep in mind that case law interpretations can evolve over time.