Negative List for Input Tax Credit in GST. Based on the character, definitions are generally of two types (i) inclusive – i.e. providing what all is covered by specification while leaving the scope open to others also to be covered within the ambit of the provision, (ii) exclusive (or ‘means’ definition) – i.e. those providing an exhaustive meaning to the term and no other meaning is permissible.
In the earlier regime of central excise or even for that matter in the State VAT Laws, the terms ‘inputs’, ‘input services’ and ‘capital goods’ are defined with certain negative lists. Such negative lists restrict the scope of inputs, input services or capital goods, which in turn restricts the scope of availing input tax credit.
Under the GST law the terms ‘input’s, ‘input services’ and ‘capital goods’ have been defined in a simplified manner without any exclusion clause. However Section 17(4) of the CGST Act provides a negative list of goods / services on which no input tax credit will be allowed. The basic purpose of providing exclusion clauses or negative lists is to restrict the scope of input tax credit, which certainly results in proportionate cascading effect. The supplies on which ITC has been unconditionally denied are as follows-
Motor vehicles and other conveyances – In effect, a taxable person, be it a manufacturer of goods, a re-seller of goods or a service provider, will not be entitled to take credit of tax charged on the motor vehicles received by him. Very often companies / organisations use motor vehicles to provide transport facility to their employees/ workers for commuting from home to work, work to home, or even from work to different places on duty. Due to such denial of credit, there has to be some cascading effect.
The credit would, however, be allowed when such motor vehicles/ conveyances are used in respect of the following supplies-
(A) further supply of such vehicles or conveyances, eg. An auto dealer.
(B) transportation of passengers, eg. A tour operator or a passenger transport operator like State Road Transport Corporations etc.
(C) imparting training on driving, flying, navigating such vehicles or conveyances, eg. A motor training school.
Credit is also allowed when the motor vehicle or conveyance, as the case may be, is used for transportation of goods.
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Supply of specified goods and services, namely,
- Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, which are usually used for personal consumption. However, a company organizing a conference of dealers/ distributors etc. often avail the supplies of food & beverages, outdoor catering etc. Tax charged to them on such supplies would not be eligible for input tax credit, resulting in increased cost of such activities. However, where such inward supply of goods or services of any particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services, credit is allowed.
- Membership of a club, health and fitness centre is also not eligible for credit. In present times, many companies or many commercial buildings have health centres, where the executives of the companies can go and re-energize themselves through workouts. This cost is kept outside the purview of ITC chain, which would make it costlier.
- Rent-a-cab, life insurance and health insurance. An exception to this is such services received where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force. This exception is restricted to those employers who provide such facilities to their employees under a statutory obligation. In other words, where an employer provides similar facilities to their employees as a HR policy without any statutory obligation, the same would be outside the purview of credit chain, making the facilities costlier.
- Travel benefits extended to employees on vacation such as leave or home travel concession. This would also discourage any such benefit being provided by an employer to an employee.
Works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service. Thus, works contract services received for construction of an office building, laboratory building, factory shed/ godowns, boundary walls etc. would not be eligible for input tax credit. However, a specific exclusion is made in relation to works contract service for construction of plant & machinery. Therefore, works contract services availed in relation to construction or setting up of a new plant, say a paper mill or a cement plant, at site, would be eligible for credit, irrespective of the argument whether such plant & machinery is attached to earth like an immovable property or not. It seems such services, to the extent relating to foundation or support structures for plant & machineries, would also be eligible for credit.
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. “Construction” for this purpose is stated to include re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property. ‘Plant and Machinery’ means apparatus, equipment, machinery, pipelines, telecommunication tower fixed to earth by foundation or structural support that are used for making outward supply and includes such foundation and structural supports but excludes land, building or any other civil structures.
Goods and/or services on which tax has been paid under section 10 which provides for levy of tax under composition scheme. Under the scheme, the proper officer may permit a registered taxable person, whose aggregate turnover in the preceding financial year did not exceed seventy five lakh rupees (refer Notification No. 8/2017-Central Tax dated 27th June, 2017), to pay, in lieu of tax payable by him, an amount calculated at the prescribed rate, of the turnover in a State, during the year. For Special Category States, the aggregate turnover limit has been fixed at fifty lakh rupees except for Uttarakhand which has opted for limit of Seventy Five Lakhs rupees.
Goods and/or services used for personal consumption.
Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Credit in such cases is denied although it may be reasonably argued that such loss or destruction is in the course of business.
Tax paid in terms of sections 74, 129 or 130. Section 74 provides for payment of tax along with interest and penalty in cases where tax has not been paid or short paid by reason of fraud, or any willful misstatement or suppression of facts to evade tax. Section 129 provides for payment of applicable tax following detention or seizure of goods and the conveyance used as a means of transport for carrying such goods, in transit in contravention of the provisions of the Act.