Blocked credits under Section 17(5): the clause by clause map

This is the one list where business purpose does not help you. Knowing the exact clause invoked is half the defence.

Motor vehicles, and the exceptions that matter

Clause (a) blocks credit on motor vehicles for transportation of persons with an approved seating capacity of not more than thirteen persons including the driver. Vehicles above that capacity, goods transport vehicles, and vehicles used for the specified purposes are outside the block.

The exceptions are the making of a further supply of such vehicles, transportation of passengers, and imparting training on driving such vehicles. A car dealer, a cab operator and a driving school are therefore eligible.

Clause (ab) extends the block to insurance, servicing, repair and maintenance of blocked vehicles, with the same exceptions plus manufacture of such vehicles and supply of general insurance in respect of them.

The recurring dispute is the employee car. Business use is irrelevant. The vehicle is either within the seating limit or it is not, and the use is either within an exception or it is not.

Employee facing supplies

Clause (b) blocks food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing or hiring of blocked vehicles, life insurance and health insurance, and membership of a club, health and fitness centre, and travel benefits extended to employees on vacation.

There are two important carve outs. Where an inward supply of a blocked category is used for making an outward taxable supply of the same category, credit is available — a caterer buying catering, a hospital buying health services.

And where the employer is obliged to provide the facility under any law in force, credit is available. This is the statutory basis for claiming credit on canteen facilities mandated by the Factories Act and on transport where a statute or a state rule requires it. The claim must be supported by the specific statutory obligation, the applicability threshold, and the recovery pattern from employees.

Where an amount is recovered from the employee, the recovery raises an output side question as well, and Circular 172/04/2022-GST deals with perquisites provided under a contract of employment.

Construction, and the state of the law after 2025

Clause (c) blocks works contract services for construction of an immovable property other than plant and machinery, except where it is an input service for the further supply of works contract service.

Clause (d) blocks goods or services received for construction of an immovable property on one's own account. After the Supreme Court in Safari Retreats read plant or machinery in clause (d) as distinct from the defined expression, the Finance Act, 2025 substituted plant and machinery with retrospective effect from 1 July 2017 and barred refund of credit already reversed.

What remains available is the plant and machinery route itself. Apparatus fixed to earth by foundation or structural support is within the definition, and lifts, chillers, transformers, DG sets and similar equipment are frequently denied by orders that do not bifurcate the project cost. Ask for the bifurcation and produce it.

The explanation excludes land, building and other civil structures, telecommunication towers and pipelines laid outside factory premises. Those are not worth contesting.

The clauses that are quietly expensive

Corporate social responsibility. Credit on goods and services used for activities relating to CSR obligations under the Companies Act is expressly blocked with effect from 1 October 2023. For earlier periods the position was contested and the pre amendment years are still being adjudicated.

Goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample. This clause reaches inventory write offs, shrinkage, expiry and marketing samples, and it is the clause most often missed in an annual reconciliation.

Tax paid under Section 74, 129 or 130. Credit of tax paid on a fraud demand, on a detention penalty or on confiscation is not available, which changes the arithmetic of settling such a demand.

Supplies to a non resident taxable person, other than on import, and any supply on which tax has been paid under the composition scheme.

Exhibit — Where the exceptions rescue the credit

Each exception is a factual claim. Assert it with the document that proves it, in the reply itself.

Authorities relied on

What to do on Monday

1. Map your expense ledger to the clauses of Section 17(5) once, properly, and keep the mapping as a working paper reviewed annually.

2. For every exception claimed, keep the proving document in the same folder as the credit register.

3. Review the capitalisation policy with the repairs and renovation explanation in mind before the year closes.

4. Reconcile inventory write offs, expiry and samples to a reversal entry every year; this is the most common audit finding.

Questions we are asked on this

Is canteen credit available where the Factories Act applies?

Where the employer is obliged by law to provide the facility, the exception applies. The claim needs the statutory provision, proof that the threshold is crossed, and the recovery arrangement documented.

Can credit be claimed on employee transport?

Only where a law in force obliges the employer to provide it, or where the vehicle is above the seating threshold. Convenience and safety policy are not the test.

Is CSR credit available for periods before October 2023?

It was contested, with divergent advance rulings. The express block from 1 October 2023 makes the later position clear and leaves the earlier years to be argued on the business purpose test.

Does clause (d) block credit on repairs and renovation?

The explanation covers construction including reconstruction, renovation, additions, alterations or repairs to the extent of capitalisation. Expenditure charged to revenue is outside the block, which makes the capitalisation policy a tax decision.

Is credit on goods destroyed in production blocked?

Normal process loss in the course of manufacture is not a write off of goods within the clause. Support it with a process loss study rather than an assertion.

In this cluster

• Input tax credit under GST: the complete 2026 position
• Section 16(2)(c): can your ITC be denied because the supplier did not pay tax?
• Section 16(4) time limit for claiming ITC: what survives after the amnesty
• GSTR-2A and 2B mismatch notices: how to answer without conceding
• Safari Retreats: what the Supreme Court decided on ITC for construction, and what Parliament then undid
• ITC on canteen, transport, insurance and other employee benefits
• ITC reversal under Rules 42 and 43: working the formula correctly
• Rule 37: ITC reversal when you do not pay your supplier within 180 days
• Rule 37A: reversal where your supplier did not file its GSTR-3B
• Rule 86A blocking of the electronic credit ledger: the remedies that actually work

GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.