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CA Intermediate · Taxation · Input Tax Credit

Anil Enterprises, Pune, a registered manufacturer of taxable goods, purchased a motor car (seating capacity 5 persons) for use by its directors, paying GST of Rs 3,00,000. It also purchased a hotel stay service for a client meeting from a registered hotel with GST of Rs 12,000. The hotel service is not obligatory under any law for the firm. Which statement about ITC on these items is correct?

ITC is blocked on both. A five-seater car used for directors is not for a permitted purpose such as further supply of vehicles or passenger transport, and hotel accommodation for the firm's own use is not legally obligatory, so Section 17(5) blocks both credits.

  1. AITC is available on both, because they are used for business
  2. BITC is blocked on the car, since it is not used for specified purposes, and also blocked on the hotel serviceCorrect
  3. CITC is available on the car but blocked on hotel services
  4. DITC is blocked on the car but available on the hotel service, because it is for a client meeting

Explanation

ITC on motor vehicles for transporting up to 13 persons is blocked unless used for specified purposes such as further supply, transportation of passengers or training; directors' use does not qualify. Hotel accommodation is a service blocked as food, beverages, outdoor catering or similar unless obligatory under law; here it is for the firm's own benefit, not covered by the exceptions. Business use alone does not unblock these items.

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