Blocked Credits

The previous guide set out the conditions a credit claim must meet. A business can meet every one of them, holding the invoice, appearing in GSTR-2B, with the tax paid and the goods received, and still be denied the credit. The reason is section 17(5) of the CGST Act, which lists purchases on which credit “shall not be available” at all.

The list is not random. Most of it reflects one of two judgements: that the purchase is likely to be consumed personally rather than used in the business, or that it ends up in immovable property, which GST largely does not tax on resale. Knowing which judgement lies behind an item helps in reading its exceptions, because the exceptions usually restore credit exactly where the judgement does not hold.

The block overrides the entitlement

Section 17(5) opens “Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18”. It does not matter that the purchase is used in the course or furtherance of business, which is the test for entitlement under section 16(1). If it is on the list, it is blocked unless an exception in the same clause restores it.

Motor vehicles, vessels and aircraft

Clause (a) blocks credit on “motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver)”. The block is lifted where the vehicles are used for further supply of such vehicles, for transportation of passengers, or for imparting training on driving them.

The design is precise. A car bought for staff use is blocked. The same car bought by a dealer for resale, a taxi operator, or a driving school is not. A vehicle seating more than thirteen, or a goods vehicle, is outside clause (a) altogether.

Clause (aa) applies a similar rule to vessels and aircraft. Credit is blocked except where they are used for further supply, passenger transport, training, or transportation of goods.

Clause (ab) extends the block to “general insurance, servicing, repair and maintenance” of blocked vehicles, vessels and aircraft. The proviso follows the vehicle: if the vehicle is used for a permitted purpose, credit on its insurance and repair is available. It is also available to a manufacturer of such vehicles, and to an insurer of them.

Personal-consumption items

Clause (b) blocks a group of supplies that are typically consumed by individuals, even when the business pays for them:

• food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery
• leasing, renting or hiring of blocked motor vehicles, vessels or aircraft, except when used for the permitted purposes
• life insurance and health insurance
• membership of a club, health and fitness centre
• travel benefits to employees on vacation, such as leave or home travel concession

Two provisos open the block. The first applies to the items in sub-clause (i). Credit is available where the inward supply is used “for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply”. A caterer buying food for catering, or a tour operator buying hotel meals for a package it sells, is not blocked.

The second proviso applies to all of clause (b). Credit is available “where it is obligatory for an employer to provide the same to its employees under any law for the time being in force”. A canteen that a factory is legally required to run is the common example. The test is a legal obligation, not a contractual promise or an established practice.

Construction of immovable property

Clauses © and (d) are the most valuable blocks, because construction costs are large.

Clause © blocks “works contract services when supplied for construction of an immovable property (other than plant and machinery)”. The exception is “where it is an input service for further supply of works contract service”: a main contractor can take credit on a subcontractor’s works contract.

Clause (d) blocks “goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the course or furtherance of business”.

Three definitions shape these clauses.

Construction includes “re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation”. A repair that is expensed is not construction. One that is capitalised is.

Plant and machinery is defined in the Explanation at the end of section 17. It means apparatus, equipment and machinery “fixed to earth by foundation or structural support”, used for making outward supplies, and includes those foundations and supports. It excludes “land, building or any other civil structures”, telecommunication towers, and pipelines laid outside the factory premises. A machine bolted to a concrete base is plant and machinery, and so is its base. The factory shed around it is not.

On his own account points to construction for the person’s own use. A builder constructing flats for sale is generally regarded as outside it, since the building is its stock in trade rather than its own asset.

“Plant or machinery”: a judgment and the amendment that followed

Until 2025, clause (d) did not say “plant and machinery”, the defined term. It said “plant or machinery”. That difference was the centre of Chief Commissioner of Central Goods and Service Tax v. Safari Retreats Private Limited, Civil Appeal No. 2948 of 2023, decided by the Supreme Court on 3 October 2024.

The facts were these. The respondent built a shopping mall to let out to tenants. Construction consumed cement, steel, lifts, escalators, air-conditioning plant and a range of professional services, all taxed under GST, and the respondent accumulated credit of more than Rs 34 crore. The rent it then charged was itself a taxable supply. The respondent sought to set the construction credit against the tax on rent, and was told that section 17(5)(d) barred it. The Orissa High Court read down the block in a judgment of 17 April 2019. It held that a person paying GST on rent from a mall was entitled to credit on the tax paid in building it.

The Supreme Court did not accept the reading down. It held that the challenge to the validity of clauses © and (d), and of section 16(4), was not established. But it also held that “plant or machinery” in clause (d) “cannot be given the same meaning as the expression ‘plant and machinery’ defined by the explanation”. Whether a mall, warehouse or other building is a “plant” was a factual question. It depended on “the business of the registered person and the role that building plays in the said business”. If constructing the building was “essential for carrying out the activity of supplying services, such as renting”, the building could be a plant, and outside the block. The cases were sent back to the High Court to apply that functionality test.

Parliament responded in section 124 of the Finance Act, 2025, brought into force on 1 October 2025 by Notification No. 16/2025-Central Tax. Clause (d) now reads “plant and machinery”, a substitution that “shall be deemed to have been substituted with effect from the 1st day of July, 2017”. A new Explanation 2 provides that “notwithstanding anything to the contrary contained in any judgment, decree or order of any court”, any reference to “plant or machinery” “shall always be deemed to have been construed as a reference to ‘plant and machinery’”.

On its words, the amendment removes the textual basis for the functionality test. It does so from the start of GST, so a building constructed on one’s own account is blocked under clause (d) whether it is let out or not.

How far that reaches back is contested, and no court has yet decided it. As of October 2026, no order deciding the constitutional validity of the retrospective amendment itself has been traced. Three High Court orders show where the argument stands.

• Orissa High Court, Life Line Multi-Ventures Pvt. Ltd. v. Union of India, W.P.© No. 34064 of 2025, order of 19 December 2025. A notice dated 8 August 2025 under section 73 of the Odisha GST Act questioned credit for April 2021 to March 2022. Odisha’s own amendment to section 17(5)(d) received the Governor’s assent only on 4 October 2025. The court took the prima facie view that those periods “could not be questioned” by that notice to apply an amendment that “came to exist after issue of SCN”. It entertained the writ, noting a “pertinent question with regard to retrospectivity”.
• Andhra Pradesh High Court, Kavya Avenues LLP v. Union of India, W.P. No. 6315 of 2026, order of 18 March 2026. A builder had taken credit on goods and equipment used to construct commercial buildings for 2019-20 to 2023-24. It was served a notice under section 74 alleging wilful misstatement and suppression. The court reasoned that the claim “was permissible, till 29.03.2025”, when the amendment was made, so the jurisdictional fact for section 74 “appears to be absent”. It stayed the proceedings pending the department’s reply.
• Delhi High Court, Riveria Commercial Developers Ltd. v. Union of India and Delhi International Airport Ltd. v. Union of India, order of 10 August 2026. These writs challenged clauses © and (d), and a 2018 CBIC circular. The court treated validity as settled by Safari Retreats. It recorded the petitioners’ submission that the retrospective amendment “does not affect certain observations made by the Supreme Court”, without deciding it. It left the parties to the adjudicating authority, noting that the department “does not dispute” that the Supreme Court’s judgment is to be applied in reading the circular.

None of these orders is a final decision. They show that the retrospective reach of the amendment, and the cost of having relied on Safari Retreats before it, are being litigated. For credit claimed before the amendment was enacted (the Finance Act, 2025 received assent on 29 March 2025, and section 124 was brought into force on 1 October 2025), the outcome may turn on those cases as much as on the amended text.

The remaining blocks

The rest of section 17(5) is shorter, and each clause has a clear rationale.

• Composition taxes, clause (e). Goods or services on which tax was paid under section 10, the composition scheme. A composition supplier cannot charge tax on its invoice, so there is nothing for a recipient to claim.
• Non-resident taxable persons, clause (f). Credit is blocked on everything received, except goods they import.
• Corporate social responsibility, clause (fa). Inserted from 1 October 2023, it blocks goods and services “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”.
• Personal consumption, clause (g). This is a general block, behind the specific ones in clause (b).
• Goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples, clause (h). The goods never reach a taxable outward supply. If credit was already taken, it must be reversed.
• Tax paid under section 74, clause (i), for “any period up to Financial Year 2023-24”. Tax paid on a demand confirmed for fraud, wilful misstatement or suppression cannot then be taken back as credit. The clause, like rule 36(3) of the CGST Rules, refers only to section 74. It does not mention section 74A, which governs demands for 2024-25 onwards.

Reading a blocked-credit question

The order of analysis is:

1. Is the credit available under section 16, as set out in the previous guide? If not, the question ends there.
2. Does the purchase fall within any clause of section 17(5)? Read the whole clause, including its exceptions and provisos.
3. For vehicles, vessels and aircraft, check the seating capacity and the use. For their insurance and repair, follow the vehicle.
4. For food, health, club membership and similar items, check whether the purchase is used for an outward supply of the same category, or is required by law to be provided to employees.
5. For construction, check whether the cost is capitalised; whether the asset is plant and machinery within the Explanation; whether it is on the person’s own account; and whether, for works contracts, the purchase is an input to a further works contract.
6. Remember that a blocked purchase may still affect other figures. Rules 42 and 43, covered in the next guide, use blocked credit as one of their inputs.

The next guide covers apportionment and reversal: what happens when a purchase is used partly for taxable supplies and partly for something else.