In the context of the Goods and Services Tax (GST) in India, apportionment of credit and blocked credits refer to two distinct situations regarding Input Tax Credit (ITC):

1. Apportionment of Credit:

This arises when a registered taxpayer uses the same goods or services partly for business purposes and partly for other purposes. In such cases, the taxpayer is only eligible to claim ITC for the portion of the input tax that is attributable to the business use.

Here’s how apportionment typically works:

• Scenario: A company purchases office supplies (e.g., pens, paper) for both its office staff and for personal use by the owner.
• Apportionment: The company can only claim ITC on the portion of the GST paid on the supplies that relates to the office staff usage (business purpose). This might involve calculating the percentage of supplies used for business based on factors like number of employees, estimated personal use, etc.

2. Blocked Credits:

These are certain categories of input tax credit that are not available for a taxpayer to claim under GST, regardless of how the goods or services are used.

Here are some common examples of blocked credits:

• ITC on goods or services used for personal consumption, enjoyment, or gift.
• ITC on purchases from unregistered dealers (unless exceptions apply).
• ITC on certain capital goods beyond a specific limit.
• ITC on travel, hospitality, membership fees, etc., with limitations.

The purpose of blocking credits is to prevent misuse of the ITC system and ensure fairness in the tax system.

Key Points to Remember:

• Apportionment applies when the same input is used for both business and non-business purposes, allowing partial ITC claim.
• Blocked credits are specific categories of input tax that are completely ineligible for claiming ITC, regardless of use.
• Consulting a tax professional is recommended to understand specific apportionment methods and navigate blocked credit situations effectively.

Examples

Scenario 1: Apportionment of ITC for Mixed-Use Items

• A restaurant owner (registered under GST) purchases ₹10,000 worth of groceries(tax invoice reflects 18% GST).
• 80%of the groceries are used for preparing food served to customers (taxable supply).
• 20%of the groceries are used for personal consumption by the owner (non-business use).

Apportionment of ITC:

• Total ITC available: ₹10,000 * 18% = ₹1,800
• ITC eligible for claim (80% for business use): ₹1,800 * 80% = ₹1,440
• Blocked ITC (20% for non-business use): ₹1,800 * 20% = ₹360

Explanation: The restaurant owner can claim ₹1,440 as ITC on the groceries used for their business. However, the ITC on the portion used for personal consumption (₹360) is blocked and cannot be claimed.

Scenario 2: Blocked Credit for Exempt Supplies

• A travel agency (registered under GST) incurs ₹5,000 in expenses related to office rent(tax invoice reflects 18% GST).
• Providing office space is an exempt supply under GST.

Blocked Credit:

• Total ITC available: ₹5,000 * 18% = ₹900

Explanation: Since renting office space is an exempt supply, the entire ITC of ₹900 on the rent is blocked and cannot be claimed by the travel agency.

Scenario 3: Apportionment of ITC for Capital Goods

• A manufacturing company (registered under GST) purchases a new machine for ₹1,00,000 (tax invoice reflects 18% GST).
• The machine has a useful life of 5 years as per the GST schedule.

Apportionment of ITC:

• Total ITC available: ₹1,00,000 * 18% = ₹18,000
• ITC claimed in the first year (20% of total ITC): ₹18,000 * 20% = ₹3,600
• Remaining ITC to be claimed in subsequent years: ₹18,000 – ₹3,600 = ₹14,400

Explanation: The company can claim only 20% (as per the prescribed rate for machinery) of the total ITC in the first year (₹3,600). The remaining ITC (₹14,400) will be carried forward and claimed in equal installments over the remaining useful life of the machine (4 years).

These are just a few examples, and the specific treatment of apportionment or blocked credits can vary depending on the nature of the transaction and the applicable GST provisions. It’s advisable to consult a qualified tax professional for guidance on specific situations and ensure compliance with GST regulations.

Case laws

• GST Portal: The official GST portal houses various resources, including searchable judgments related to GST. You can explore the “Search Judgments” section under the “Law & Rules” tab.
• Department of Revenue (DoR):The DoR website provides access to various legal documents and resources. You can explore the “Judgments & Orders” section for relevant GST-related rulings.

Legal Databases:

• Indian Kanoon: This online legal database allows you to search for case laws based on keywords, court jurisdiction, and other criteria. You can utilize keywords like “apportionment of credit”, “blocked ITC”, “GST”, etc., to find relevant cases.
• Taxmann: This legal publisher offers a subscription-based online legal database containing extensive information on Indian tax laws, including GST. You can search for relevant case laws through their platform.

Additional Tips:

• When searching for case laws, use specific keywords related to the issue you’re interested in, such as “apportionment of ITC”, “blocked credit”, “GST”, etc.
• Pay attention to the date of the judgment, as older rulings might not be relevant due to changes in GST regulations over time.
• Consider filtering your search based on the relevant court hierarchy (e.g., High Court, Supreme Court) for increased focus.

Disclaimer: Remember that legal information can be complex and change over time. While these resources may be helpful as a starting point, it’s always recommended to consult with a qualified legal professional for accurate and personalized legal advice regarding specific situations. They can help you interpret relevant case laws and ensure they apply to your specific circumstances.

Faq questions

Understanding Apportionment and Blocked Credits

• Q: What is “apportionment of credit” in the context of GST?
  • A:Apportionment of credit refers to the process of dividing the total Input Tax Credit (ITC) claimed by a registered taxpayer between different taxable supplies, exempt supplies, and non-business purposes.
• Q: What are “blocked credits” under GST?
  • A:Blocked credits are unutilized ITC amounts that a taxpayer cannot claim immediately due to non-fulfillment of certain conditions.

When is Apportionment Required?

• Q: When do I need to apportion my ITC?
  • A:Apportionment is necessary when you use inputs or input services for:
    • Both taxable and exempt supplies: You need to apportion the ITC based on the proportion of the inputs used for each type of supply.
    • Both business and non-business purposes: You cannot claim ITC for the portion of inputs used for non-business purposes, so apportionment helps determine the eligible portion.

How is Apportionment Done?

• Q: How do I calculate the apportionment of ITC?
  • A:The specific method for apportionment depends on the nature of your business and the type of input. Generally, methods include:
    • Proportionate method: Based on the value of taxable and exempt supplies made.
    • Actual use method: Based on physical quantities of inputs used for different purposes.
    • Simplified method: Applicable to specific industries or situations, as prescribed by the GST Council.

Understanding Blocked Credits

• Q: What are the common reasons for blocked credits?
  • A:Common reasons for blocked credits include:
    • Non-payment of tax by the supplier: You cannot claim ITC unless your supplier has paid the GST they charged you.
    • Non-receipt of tax invoice: You require a valid tax invoice to claim ITC.
    • Reversal of ITC: In certain situations, you may need to reverse previously claimed ITC, leading to blocked credits.
    • Non-fulfillment of specific conditions: Certain provisions might impose specific conditions for claiming ITC, and failure to meet them can block the credit.

Claiming Blocked Credits

• Q: Can I ever claim blocked credits?
  • A:Yes, in some scenarios, blocked credits can be claimed in the future when certain conditions are met. This may involve:
    • Your supplier paying the outstanding tax.
    • Receiving a valid tax invoice if previously missing.
    • Fulfilling any specific conditions associated with the blocked credit.

Additional Considerations

• Q: Where can I find detailed information on apportionment and blocked credits?
  • A:Refer to:
    • CGST Act, 2017: Sections 17 and 44
    • CGST Rules, 2017: Rules 42-46
  • Q: Should I consult a tax professional?
    • A:Given the complexities of GST and the specific nuances of apportionment and blocked credits, seeking guidance from a qualified tax advisor is highly recommended. They can help you understand the applicable rules, calculate apportionment accurately, and navigate blocked credit situations effectively.