Block Input Tax Credit – Motor Vehicle – Section 17(5) of CGST Act, 2017

Section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017 deals with the blockage of input tax credit (ITC) in relation to motor vehicles. According to this section, ITC shall not be available in respect of the following:

1. Motor vehicles and other conveyances except when they are used for the following purposes:

1. For making taxable supplies of transportation of passengers or goods

2. For providing training on driving, flying, navigating such vehicles or conveyances

3. For transportation of goods

2. Transportation of passengers, where the supplier of service is in the business of transportation of passengers.

It's important to note that the ITC blockage only applies to motor vehicles and other conveyances, and not to all inputs and input services. In other words, ITC can still be claimed on other inputs and input services used for business purposes.

The rationale behind this provision is that motor vehicles and other conveyances are generally considered to be assets that have a dual use - they can be used for both business and personal purposes. By blocking ITC for such assets, the government aims to prevent the possibility of businesses claiming ITC for assets that are primarily used for personal purposes.

Scope of the term "motor vehicles" under Section 17(5)

The term "motor vehicles" under Section 17(5) of the CGST Act, 2017 has a broad scope and includes all types of vehicles that are designed to be driven on roads and highways. This includes but is not limited to cars, buses, trucks, motorcycles, three-wheelers, and other vehicles that are powered by internal combustion engines, electric motors, or other forms of propulsion.

The term "motor vehicles" also includes all types of conveyances that are used for transportation, such as trailers, semi-trailers, and container chassis. However, it's important to note that the blockage of input tax credit (ITC) is not limited to motor vehicles that are registered under the Motor Vehicles Act, 1988. The term "motor vehicles" covers all types of vehicles that are used for transportation on roads and highways, irrespective of their registration status.

It's worth noting that the term "motor vehicles" does not include vehicles that are not designed to be driven on roads and highways, such as boats, ships, airplanes, and other modes of transportation that are not used on roads. Therefore, the blockage of ITC under Section 17(5) does not apply to these types of assets.

In summary, the term "motor vehicles" under Section 17(5) has a broad scope and covers all types of vehicles that are designed to be driven on roads and highways, including cars, buses, trucks, motorcycles, and other similar vehicles, as well as conveyances that are used for transportation.

The rationale behind the blockage of ITC on motor vehicles and other conveyances

The rationale behind the blockage of input tax credit (ITC) on motor vehicles and other conveyances under Section 17(5) of the CGST Act, 2017 is to prevent businesses from claiming ITC for assets that are primarily used for personal purposes.

Motor vehicles and other conveyances are often considered to have a dual use, as they can be used for both business and personal purposes. By blocking ITC for such assets, the government aims to prevent the possibility of businesses claiming ITC for assets that are primarily used for personal purposes. This helps to ensure that the GST system is not misused and that businesses do not claim unwarranted tax benefits.

Another reason for the blockage of ITC on motor vehicles is to maintain the integrity of the GST system. If businesses were allowed to claim ITC for motor vehicles that are primarily used for personal purposes, this would create a potential loophole in the GST system that could be exploited by businesses to claim unwarranted tax benefits.

Conclusion

The blockage of ITC on motor vehicles and other conveyances is also consistent with the principles of GST, which is a consumption-based tax. The purpose of GST is to tax the consumption of goods and services, and not the inputs used to produce them. By blocking ITC on motor vehicles, the government ensures that businesses are not claiming tax credits for the consumption of assets that are not directly related to the production of goods or services.

Overall, the blockage of ITC on motor vehicles and other conveyances is intended to prevent the misuse of the GST system and maintain its integrity, while also ensuring that the tax is levied on the consumption of goods and services, and not on inputs that are not directly related to their production.