Odisha GST Department imposes Penalty on Infosys for Claiming Ineligible ITC: What is Ineligible GST ITC

The Odisha Goods and Services Tax ( GST ) department has imposed a penalty of Rs. 1.46 Lakhs on the IT major company Infosys for claiming ineligible Input Tax Credit ( ITC ). Infosys disclosed the information through an exchange filing, stating that it received an order on April 22, 2024, issued by the Assistant Commissioner of State, Odisha ( GST ), imposing a penalty of Rs 1,46,873.

INPUT TAX CREDIT UNDER GST

ITC serves as a mechanism enabling businesses to offset the taxes paid on inputs against the taxes they are obligated to pay on outputs. Essentially, it empowers businesses to lower their tax burden by claiming credit for the taxes paid on purchases (inputs) against the taxes collected on sales (outputs).

In simple words, ITC allows manufacturers, suppliers..etc to claim a refund for the taxes paid on their purchases, reducing their GST liability.

INELIGIBLE ITC u/s 17(5) OF GST ACT

The Section 175(5) of the GST Act lists out the purchases where businesses cannot claim their ITC. That is, the section clearly mentions about the ‘Ineligible ITC’. The section covers 11 clauses. This section overrides anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available. The following are the lists ineligible for ITC with exemptions:

MOTOR VEHICLES AND CONVEYANCES

1. motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver)
2. Purchase of aircraft and vessels. This includes not only purchase but also leasing, hiring or renting thereof.

Exemptions

When motor vehicle or vessel or aircraft is used for

1. Further supply of such vehicles, vessels or aircraft
2. Transportation of passengers
3. Imparting training on driving such vehicles (including training to operate vessels / aircraft)

SERVICES OF GENERAL INSURANCE, SERVICING, REPAIRS AND MAINTENANCE

Where a service of general insurance, servicing, repairs and maintenance is used for vehicles / vessels or aircraft mentioned above cannot claim ITC.

Exemptions

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;

(ii) where received by a taxable person engaged-

1. in the manufacture of such motor vehicles, vessels or aircraft; or
2. in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

SUPPLY OF FOOD, BEVERAGES, CLUB MEMBERSHIPS, BEAUTY TREATMENT, ETC.

Supply of food, beverages, outdoor catering, beauty treatment, health treatment, cosmetic and plastic surgery, rent-a-cab, life insurance and health insurance

Exemptions

When such services are used for furtherance of business and not end use or as an element of taxable composite or mixed supply

Membership of a Club, Health and Fitness Centre

Membership fees paid for a club, health or fitness centre

Exemptions

ITC in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

Travel Benefits

travel benefits extended to employees on vacation such as leave or home travel concession

Exemptions

ITC in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

WORKS CONTRACT

ITC is not available on works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service.

No Exemptions.

CONSTRUCTION OF IMMOVABLE PROPERTY ON OWN

ITC is not available to goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

No Exemptions.

Note: the expression "construction" includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

COMPOSITION SCHEME

ITC not available to GST paid on goods or services or both on which tax has been paid under section 10.

No Exemptions.

NON-RESIDENTS OF INDIA

ITC not available to GST paid on goods or services or both received by a non-resident taxable person except on goods imported by him.

No Exemptions.

CORPORATE SOCIAL RESPONSIBILITY

GST ITC not available  to GST paid on goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013. This is newly added in the 2023 budget.

No Exemptions.

PERSONAL CONSUMPTION

GST paid on Goods or services or both used for personal consumption comes under the category of Ineligible ITC.

No Exemptions.

STOLEN, FREE SAMPLES, DESTROYED GOODS

The Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples comes under the lists of Ineligible ITC.

No Exemptions.

DETENTION, SEIZURE, PENALTIES, LATE FEES

Any tax paid in accordance with the provisions of sections 74, 129 and 130 is not eligible for claiming ITC. The section includes detention and seizure of goods, penalties, late fees, confiscation of goods.etc. In those cases, ITC is not available.

No Exemptions.

LISTS OF GOODS AND SERVICES INELIGIBLE FOR ITC UNDER GST

1. ITC on purchases of motor vehicles, vessels, and aircraft for personal use, including those with seating capacity up to 13 persons (with exemptions )
2. General insurance, servicing, repairs, and maintenance of vehicles & vessels
3. Supply of food, beverages, club memberships, beauty treatment, surgery, etc for personal use or office parties
4. Membership of a club, Gym, Beauty club, health, and fitness centre
5. Travel for personal or business purposes, vacations, holidays, etc. where LTA is provided to the employees (unless obligated)
6. Works Contract (for construction of properties)
7. Construction of immovable property for on its own
8. Composition Scheme purchase
9. NRI goods and services - imported
10. CSR activities’ purchases
11. Personal consumption goods
12. Lost, Stolen, Destroyed, Free Samples and Gifts goods
13. Detention, Seizure, Late Fees

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