Taxation - GST Ch 07: Itc - Test 3: answer key

Question 1 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. Nandini Mobility Services Pvt Ltd, registered in Karnataka, operates a taxable passenger transportation business and maintains a separate fleet for transporting its employees. During FY 2026-27, it acquired three vehicles. On 5 May 2026, it purchased a minibus having an approved seating capacity of 13 persons, including the driver, for ₹20,00,000 plus GST of ₹3,60,000. The vehicle is used exclusively to transport employees between their residences and the company's premises. No separate passenger transportation charge is collected. On 18 June 2026, Nandini acquired another bus having an approved seating capacity of 14 persons, including the driver, for ₹25,00,000 plus GST of ₹4,50,000. This bus is also used exclusively for employee transportation. The company additionally purchased a five-seater passenger car on 2 July 2026 for ₹10,00,000 plus GST of ₹1,80,000. Unlike the other vehicles, this car is deployed exclusively for taxable passenger transportation services supplied to corporate customers for consideration. During August 2026, Nandini incurred GST of ₹27,000 on general insurance and ₹18,000 on repair services relating to the 13-seater minibus. It also incurred GST of ₹14,000 on insurance and ₹22,000 on servicing of the five-seater taxi car. Both vehicles remained in operation throughout the period. In September 2026, the company renewed the insurance policy of its 14-seater bus, paying GST of ₹24,000, and incurred another ₹18,000 as GST on its maintenance contract. All three vehicles were used for business activities, and the company maintains separate records of their respective uses. The management proposes to claim ITC on every expenditure on the ground that all vehicles are used in its business.

Determine the aggregate ITC available to Nandini Mobility Services Pvt Ltd on the purchase of the three vehicles. The minibus has an approved seating capacity of 13 persons including the driver, the second bus has an approved capacity of 14 persons, and the passenger car is used exclusively for taxable passenger transportation services. All three vehicles are received and the other ITC conditions are fulfilled.

1. ₹6,30,000, comprising the 14-seater bus and the passenger taxi. (correct answer)
2. ₹10,80,000, comprising both buses and the passenger taxi.
3. ₹1,80,000, comprising only the passenger taxi purchase.
4. ₹4,50,000, comprising only the 14-seater employee bus.

Answer: A — ₹6,30,000, comprising the 14-seater bus and the passenger taxi.

Explanation. The 13-seater minibus is used for employee transportation and does not satisfy an exception under section 17(5)(a); its GST of ₹3,60,000 is blocked. The 14-seater bus exceeds the statutory threshold, so its ₹4,50,000 GST is not blocked under this clause. The five-seater taxi is used for taxable passenger transportation, so ₹1,80,000 is eligible under the exception. Total ITC = ₹4,50,000 + ₹1,80,000 = ₹6,30,000.

Where it goes wrong. Treating every business-use vehicle as eligible and overlooking that the statutory threshold includes exactly 13 persons.

Authority. Section 17(5)(a) of the CGST Act, 2017

Question 2 · 2 marks · Taxation - GST Ch 07: Itc · hard

Nandini argues that its 13-seater minibus should qualify for ITC because its approved capacity consists of 12 passengers and one driver. The vehicle is used only for transporting employees and does not generate taxable passenger transportation revenue. The GST charged on its purchase is ₹3,60,000. Which interpretation of the seating-capacity restriction is applicable?

1. ITC is available because the driver is excluded while calculating seating capacity.
2. ITC is blocked because the driver is included in the thirteen-person limit. (correct answer)
3. ITC is available because transporting employees constitutes taxable passenger transportation.
4. Half the GST is available because the vehicle is used in business.

Answer: B — ITC is blocked because the driver is included in the thirteen-person limit.

Explanation. Section 17(5)(a) covers motor vehicles for transportation of persons having approved seating capacity of not more than 13 persons, including the driver. Here, passengers = 12 and driver = 1, making total approved capacity = 12 + 1 = 13. The employee shuttle is not used for further supply, taxable passenger transportation or driving training. Consequently, the purchase GST of ₹3,60,000 is blocked in full. Business use alone does not create an exception.

Where it goes wrong. Excluding the driver from the seating-capacity calculation or confusing employee transportation with taxable passenger transportation.

Authority. Section 17(5)(a) of the CGST Act, 2017

Question 3 · 2 marks · Taxation - GST Ch 07: Itc · hard

During August 2026, Nandini incurred GST of ₹27,000 on general insurance and ₹18,000 on repairs of its 13-seater employee minibus. It also incurred GST of ₹14,000 on insurance and ₹22,000 on servicing of its five-seater taxi used exclusively for taxable passenger transportation. Determine the aggregate credit available on these insurance and repair services under section 17(5)(ab).

1. ₹81,000, comprising insurance and repairs relating to both vehicles.
2. ₹45,000, comprising only the expenses on the employee minibus.
3. ₹36,000, comprising the insurance and servicing of the taxi. (correct answer)
4. Nil, because insurance and repair services relating to passenger vehicles are blocked.

Answer: C — ₹36,000, comprising the insurance and servicing of the taxi.

Explanation. The minibus is an ineligible vehicle, and its insurance and repair GST of ₹27,000 + ₹18,000 = ₹45,000 are blocked under section 17(5)(ab). The taxi is used for taxable passenger transportation, which is an exception under section 17(5)(a). Consequently, related services qualify under section 17(5)(ab)(i). Eligible credit = ₹14,000 + ₹22,000 = ₹36,000. Aggregate eligible credit is therefore ₹36,000.

Where it goes wrong. Applying the restrictions on servicing and insurance without checking whether the underlying vehicle is being used for an eligible purpose.

Authority. Section 17(5)(a) of the CGST Act, 2017; Section 17(5)(ab) of the CGST Act, 2017

Question 4 · 2 marks · Taxation - GST Ch 07: Itc · hard

Nandini incurs GST of ₹24,000 on general insurance and ₹18,000 on maintenance services relating to its 14-seater bus. The bus is used exclusively for employee transportation and does not make taxable passenger transportation supplies. The finance team proposes to block the entire ₹42,000 by applying section 17(5)(ab). Which treatment is correct, assuming all other ITC requirements are fulfilled?

1. Nil credit, because the bus is used for transporting employees.
2. ₹21,000 credit, because only half the maintenance expense qualifies.
3. ₹24,000 credit, because insurance is allowed but maintenance is blocked.
4. ₹42,000 credit, because the 14-seater bus falls outside clause (a). (correct answer)

Answer: D — ₹42,000 credit, because the 14-seater bus falls outside clause (a).

Explanation. The approved seating capacity is 14 persons, exceeding the thirteen-person threshold in section 17(5)(a). Thus, this bus is not a motor vehicle referred to in clause (a). Section 17(5)(ab) applies to insurance, servicing, repair and maintenance relating to vehicles referred to in clause (a) or (aa). The restriction therefore does not cover these services. Eligible credit = ₹24,000 + ₹18,000 = ₹42,000.

Where it goes wrong. Applying clause (ab) to every passenger vehicle without first determining whether the underlying vehicle falls within clause (a).

Authority. Section 17(5)(a) of the CGST Act, 2017; Section 17(5)(ab) of the CGST Act, 2017

Question 5 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. Dakshin AeroMaritime Services Ltd, registered in Gujarat, carries on cargo transportation, passenger ferry operations and aviation-related services. During FY 2026-27, it acquired several conveyances for its different business activities. On 10 April 2026, it purchased a business aircraft having an approved seating configuration of eight passengers for ₹1,00,00,000 plus GST of ₹18,00,000. The aircraft is used exclusively for travel by directors and senior management between business locations. It is not deployed for passenger transportation for consideration, transportation of goods or training. On 15 May 2026, the company acquired a cargo aircraft for ₹1,50,00,000 plus GST of ₹27,00,000. This aircraft is configured for carrying industrial consignments between warehouses and ports. During July 2026, the company also purchased a cargo vessel for ₹60,00,000 plus GST of ₹10,80,000. The vessel transports machinery and raw materials belonging to the company between its coastal depots. On 12 August 2026, Dakshin acquired a passenger ferry vessel for ₹50,00,000 plus GST of ₹9,00,000. It operates scheduled taxable passenger transportation services between two coastal locations. In September 2026, it incurred GST of ₹54,000 on hull insurance and ₹54,000 on servicing and maintenance of this ferry vessel. The company additionally acquired a private leisure yacht for ₹30,00,000 plus GST of ₹5,40,000. The yacht is used solely for recreational trips organised for directors and investors. It incurred another ₹27,000 as GST on insurance and ₹27,000 as GST on repair services relating to the yacht. No taxable transportation, training or further supply is undertaken using this yacht. All invoices are in the company's name and all vessels and aircraft are received during the respective periods.

Dakshin acquired a cargo aircraft carrying GST of ₹27,00,000 and a cargo vessel carrying GST of ₹10,80,000. The aircraft transports industrial consignments, while the vessel transports the company's own machinery and raw materials between its depots. Neither conveyance is used for recreational purposes or management travel. Determine the aggregate ITC available on their purchase, assuming the other conditions are met.

1. ₹37,80,000, because both conveyances are used for transportation of goods. (correct answer)
2. ₹27,00,000, because only the cargo aircraft qualifies for the exception.
3. ₹10,80,000, because the vessel alone satisfies the goods transportation exception.
4. Nil, because vessels and aircraft are always blocked regardless of usage.

Answer: A — ₹37,80,000, because both conveyances are used for transportation of goods.

Explanation. Section 17(5)(aa) blocks vessels and aircraft but excludes those used for transportation of goods. The cargo aircraft qualifies for this exception, as does the vessel transporting machinery and raw materials. The exception does not require that the goods belong to customers or that a separate freight charge be collected. Aircraft ITC = ₹27,00,000; vessel ITC = ₹10,80,000. Total eligible ITC = ₹27,00,000 + ₹10,80,000 = ₹37,80,000.

Where it goes wrong. Assuming that transportation of goods qualifies only where the conveyance carries goods belonging to customers for consideration.

Authority. Section 17(5)(aa) of the CGST Act, 2017

Question 6 · 2 marks · Taxation - GST Ch 07: Itc · hard

Dakshin purchased an eight-passenger business aircraft for ₹1 crore plus GST of ₹18,00,000. The aircraft is exclusively used by the directors and senior management for travel between business locations. No transportation of passengers for consideration, further supply, transportation of goods or training activity is undertaken using it. The company argues that business-related travel should qualify for credit. What is the permissible ITC?

1. ₹18,00,000, because the aircraft supports the company's taxable business.
2. Nil, because management travel does not satisfy an exception under clause (aa). (correct answer)
3. ₹9,00,000, because half the tax may be claimed for business travel.
4. ₹18,00,000, provided the aircraft is used only between business locations.

Answer: B — Nil, because management travel does not satisfy an exception under clause (aa).

Explanation. Section 17(5)(aa) blocks ITC on aircraft unless used for further supply, taxable transportation of passengers, specified flying training or transportation of goods. Travel by directors and senior management does not fall within any of these exceptions. The fact that such travel relates to business does not alter the blocked-credit provision. GST on purchase = ₹18,00,000. Disallowed ITC = ₹18,00,000 × full = ₹18,00,000. Hence, eligible credit is Nil.

Where it goes wrong. Treating the general business-purpose eligibility principle as overriding the specific blocked-credit provision for aircraft.

Authority. Section 17(5)(aa) of the CGST Act, 2017

Question 7 · 2 marks · Taxation - GST Ch 07: Itc · hard

Dakshin acquired a passenger ferry vessel for ₹50,00,000 plus GST of ₹9,00,000 and uses it exclusively for scheduled taxable passenger transportation. Its hull insurance carries GST of ₹54,000, while servicing and maintenance carry GST of another ₹54,000. The company seeks the purchase credit as well as credit on the related services. Determine the aggregate ITC available.

1. ₹9,00,000, because only purchase tax qualifies under the passenger transportation exception.
2. ₹1,08,000, because only the insurance and maintenance services qualify.
3. ₹10,08,000, because both purchase and related services qualify. (correct answer)
4. Nil, because the vessel is used for transportation of passengers.

Answer: C — ₹10,08,000, because both purchase and related services qualify.

Explanation. A vessel used for taxable transportation of passengers qualifies under section 17(5)(aa)(i)(B). Related insurance, servicing and maintenance are also eligible under section 17(5)(ab)(i) because the vessel is used for a specified permitted purpose. Purchase ITC = ₹9,00,000. Insurance and maintenance ITC = ₹54,000 + ₹54,000 = ₹1,08,000. Aggregate eligible ITC = ₹9,00,000 + ₹1,08,000 = ₹10,08,000.

Where it goes wrong. Allowing credit on purchase of an eligible vessel but overlooking the linked rule governing insurance and maintenance services.

Authority. Section 17(5)(aa) of the CGST Act, 2017; Section 17(5)(ab)(i) of the CGST Act, 2017

Question 8 · 2 marks · Taxation - GST Ch 07: Itc · medium

Dakshin acquired a leisure yacht for ₹30,00,000 plus GST of ₹5,40,000. It is used exclusively for recreational trips for directors and investors. During the same year, Dakshin incurred ₹27,000 GST on hull insurance and ₹27,000 GST on repair services relating to the yacht. No taxable passenger transportation, further supply, goods transportation or navigation training is carried out using the vessel. Determine the aggregate ITC blocked on these three expenditures.

1. ₹54,000, comprising only the insurance and repair services.
2. ₹5,40,000, comprising only GST on purchase of the yacht.
3. ₹2,97,000, comprising half the purchase tax and all service tax.
4. ₹5,94,000, comprising the yacht purchase, insurance and repairs. (correct answer)

Answer: D — ₹5,94,000, comprising the yacht purchase, insurance and repairs.

Explanation. The yacht is not used for any exception under section 17(5)(aa), so its purchase GST of ₹5,40,000 is blocked. Insurance and repair services relating to this ineligible vessel are also blocked under section 17(5)(ab). Service-related blocked credit = ₹27,000 + ₹27,000 = ₹54,000. Aggregate blocked ITC = ₹5,40,000 + ₹54,000 = ₹5,94,000. Business ownership does not make recreational use eligible.

Where it goes wrong. Considering insurance and repair independently without recognising that their eligibility follows the treatment of the underlying vessel.

Authority. Section 17(5)(aa) of the CGST Act, 2017; Section 17(5)(ab) of the CGST Act, 2017

Question 9 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. Suryakant General Insurance Ltd and Vardhan Motor Works Ltd are registered taxable persons operating in different sectors. Vardhan manufactures passenger motor vehicles having approved seating capacities below thirteen persons. During September 2026, Vardhan incurred GST of ₹54,000 on servicing and repair services performed by an independent workshop on vehicles manufactured by it and covered under customer warranty arrangements. The workshop issued the invoices in Vardhan's name, and the manufacturer was contractually liable for the approved maintenance expenditure. The expenditure related to vehicles manufactured by Vardhan and supplied to customers. Suryakant provides taxable general insurance services in respect of passenger cars used by individuals and companies for ordinary personal and business travel. Such cars are not deployed for taxable passenger transportation, further supply or driving instruction. Under one reimbursement-mode claim in August 2026, a non-network garage issued an invoice in Suryakant's name for repair services having a taxable value of ₹1,50,000 and GST of ₹27,000. The insured first paid the garage. Suryakant subsequently reimbursed the approved repair cost of ₹1,00,000 plus the corresponding GST of ₹18,000. The remaining repair value was borne by the policyholder. Under a second cashless claim, a network garage issued an invoice in Suryakant's name for ₹80,000 plus GST of ₹14,400, which Suryakant paid directly. Under a third reimbursement claim, the garage issued an invoice for ₹60,000 plus GST of ₹10,800 in the policyholder's name. Suryakant reimbursed the entire amount to the policyholder. The insurance company intends to claim all GST appearing on the repair invoices. The manufacturer separately seeks credit on its warranty-related maintenance expenditure. Both entities satisfy the ordinary conditions under section 16, and none of the vehicles involved is used for any of the taxable activities specified in section 17(5)(a) or section 17(5)(aa).

Vardhan Motor Works Ltd manufactures passenger cars having approved seating capacities below thirteen persons. During September 2026, it incurred GST of ₹54,000 on repair and maintenance services performed on manufactured vehicles covered by customer warranty arrangements. The garage issued invoices in Vardhan's name, and Vardhan was liable for the maintenance expenditure. Is the credit blocked merely because the underlying cars would ordinarily fall within section 17(5)(a)?

1. No, because the manufacturer exception under section 17(5)(ab)(ii) applies. (correct answer)
2. Yes, because servicing of all passenger vehicles is permanently blocked.
3. Yes, unless the cars are subsequently used for taxable passenger transportation.
4. Only ₹27,000 may be claimed because warranty repairs receive half credit.

Answer: A — No, because the manufacturer exception under section 17(5)(ab)(ii) applies.

Explanation. Section 17(5)(ab)(ii)(I) permits ITC on specified services received by a taxable person engaged in the manufacture of such motor vehicles, vessels or aircraft. Vardhan is engaged in manufacturing the same category of passenger motor vehicles. The garage invoices are issued to Vardhan, which bears the warranty-related maintenance cost. Therefore, the manufacturer exception applies. Eligible ITC = GST on repair and maintenance services = ₹54,000.

Where it goes wrong. Applying the ordinary restriction on an ineligible passenger vehicle without checking the separate manufacturer exception for related services.

Authority. Section 17(5)(a) of the CGST Act, 2017; Section 17(5)(ab)(ii)(I) of the CGST Act, 2017

Question 10 · 2 marks · Taxation - GST Ch 07: Itc · hard

In a reimbursement-mode insurance claim, a garage issued an invoice in Suryakant General Insurance Ltd's name for repair services of ₹1,50,000 plus GST of ₹27,000. The insured first paid the garage. After assessment, Suryakant reimbursed the insured ₹1,00,000 plus corresponding GST of ₹18,000. The balance of the repair expenditure was borne by the insured. Determine the ITC that Suryakant may claim under the applicable clarification.

1. ₹27,000, being the full GST stated on the garage invoice.
2. ₹18,000, limited to the approved repair cost reimbursed. (correct answer)
3. ₹9,000, representing half the GST paid by the garage.
4. Nil, because the insured initially paid the garage.

Answer: B — ₹18,000, limited to the approved repair cost reimbursed.

Explanation. Circular No. 217/11/2024-GST clarifies that an insurer may claim repair-service ITC in reimbursement-mode settlements when the garage invoice is issued in the insurer's name. However, credit is restricted to the approved repair liability reimbursed by the insurer. Approved taxable repair cost = ₹1,00,000. Eligible GST = ₹1,00,000 × 18% = ₹18,000. The remaining ₹50,000 repair value and ₹9,000 corresponding GST are borne by the insured and cannot be claimed by Suryakant.

Where it goes wrong. Claiming GST on the entire garage invoice even though the insurer reimbursed only the approved portion.

Authority. Section 17(5)(ab)(ii)(II) of the CGST Act, 2017; Section 2(93) of the CGST Act, 2017; Circular No. 217/11/2024-GST dated 26.06.2024

Question 11 · 2 marks · Taxation - GST Ch 07: Itc · medium

Under a reimbursement-mode claim, a garage issued a repair invoice for ₹60,000 plus GST of ₹10,800 in the policyholder's name. Suryakant General Insurance Ltd subsequently reimbursed the entire amount to the policyholder. The company is engaged in providing general insurance services in respect of passenger motor vehicles insured by it. Assuming the repair relates to an otherwise ineligible passenger car, what amount of ITC can Suryakant claim on this invoice?

1. ₹10,800, because the insurer ultimately reimbursed the entire repair expenditure.
2. ₹5,400, because the insurer may claim half the GST in reimbursement cases.
3. Nil, because the invoice is not issued in the insurance company's name. (correct answer)
4. ₹10,800, because section 17(5)(ab) overrides the invoice requirement.

Answer: C — Nil, because the invoice is not issued in the insurance company's name.

Explanation. The insurer exception under section 17(5)(ab)(ii)(II) does not dispense with the ordinary documentary requirements under section 16. Circular No. 217/11/2024-GST clarifies that where the garage invoice is not in the insurance company's name, ITC is unavailable to the insurer. Here, the invoice is issued in the policyholder's name. Although Suryakant reimbursed ₹60,000 + ₹10,800 = ₹70,800, credit available to Suryakant is Nil.

Where it goes wrong. Assuming that reimbursement of expenditure by the insurer automatically makes the insurer the invoice recipient.

Authority. Section 16(2)(a) of the CGST Act, 2017; Section 17(5)(ab)(ii)(II) of the CGST Act, 2017; Circular No. 217/11/2024-GST dated 26.06.2024

Question 12 · 2 marks · Taxation - GST Ch 07: Itc · hard

Suryakant General Insurance Ltd has three motor-vehicle repair claims. Claim A involves a reimbursement-mode invoice in its name, with GST of ₹27,000, of which ₹18,000 relates to the approved amount reimbursed. Claim B involves a cashless repair invoice in its name carrying GST of ₹14,400, paid directly by Suryakant. Claim C involves GST of ₹10,800 on a garage invoice issued in the insured person's name, which Suryakant reimbursed in full. Calculate the aggregate ITC available.

1. ₹52,200, representing the GST on all three repair invoices.
2. ₹18,000, representing only the approved reimbursement claim.
3. ₹14,400, representing only the cashless repair claim.
4. ₹32,400, comprising the approved reimbursement and cashless claims. (correct answer)

Answer: D — ₹32,400, comprising the approved reimbursement and cashless claims.

Explanation. Claim A: eligible GST is restricted to the approved reimbursed component of ₹18,000. Claim B: the cashless invoice is issued in Suryakant's name and paid directly, so ₹14,400 is eligible. Claim C: the invoice is issued in the insured person's name, so Suryakant cannot claim its ₹10,800. Aggregate eligible ITC = ₹18,000 + ₹14,400 + ₹0 = ₹32,400. Reimbursement and invoice-recipient requirements must be considered separately.

Where it goes wrong. Including the third claim merely because the insurer reimbursed its full amount, or taking the entire GST on Claim A.

Authority. Section 17(5)(ab)(ii)(II) of the CGST Act, 2017; Section 16(2)(a) of the CGST Act, 2017; Circular No. 217/11/2024-GST dated 26.06.2024

Question 13 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Aryan Steels Ltd purchases a passenger minibus for ₹18,00,000 plus GST of ₹3,24,000. The vehicle has 12 passenger seats and one driver's seat, giving an approved seating capacity of 13 persons. It is used exclusively to transport the company's employees between their residences and plant. No taxable passenger transportation service is supplied using it. Determine the ITC treatment under the motor-vehicle restriction.

1. Nil ITC, because the approved capacity is 13 including the driver. (correct answer)
2. ₹3,24,000 ITC, because employee transportation supports business operations.
3. ₹1,62,000 ITC, because the vehicle is partly used for passenger travel.
4. ₹3,24,000 ITC, because the driver is excluded from the capacity calculation.

Answer: A — Nil ITC, because the approved capacity is 13 including the driver.

Explanation. Approved passenger seats = 12. Driver's seat = 1. Total approved seating capacity = 12 + 1 = 13 persons. Section 17(5)(a) covers vehicles for transportation of persons having capacity of not more than thirteen, including the driver. Employee transportation does not satisfy the taxable-supply exceptions. Accordingly, blocked ITC = ₹3,24,000 × full = ₹3,24,000. Eligible ITC = Nil.

Where it goes wrong. Treating the thirteen-person threshold as referring only to passengers and excluding the driver.

Authority. Section 17(5)(a) of the CGST Act, 2017

Question 14 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered manufacturing company purchases a passenger bus having an approved seating capacity of 14 persons, including the driver, for ₹30,00,000 plus GST of ₹5,40,000. It uses the bus only for transporting employees between residential areas and its factory. The company does not provide transportation services to customers. Assuming ordinary ITC requirements are fulfilled, determine the treatment of purchase credit.

1. Nil, because the bus is used for employee transportation.
2. ₹5,40,000, because its approved seating capacity exceeds thirteen persons. (correct answer)
3. ₹2,70,000, because half the credit is permitted for employee transportation.
4. Nil, because passenger vehicles are blocked irrespective of seating capacity.

Answer: B — ₹5,40,000, because its approved seating capacity exceeds thirteen persons.

Explanation. Section 17(5)(a) restricts passenger motor vehicles having approved seating capacity of not more than 13 persons, including the driver. This bus has a capacity of 14 persons, so it falls outside the specified blocked category. Therefore, the restriction under this clause does not apply even though the bus transports employees and does not generate passenger transport revenue. Eligible ITC = GST of ₹5,40,000 × 1 = ₹5,40,000, subject to other requirements.

Where it goes wrong. Assuming that employee transportation automatically blocks credit without examining the statutory seating-capacity threshold.

Authority. Section 17(5)(a) of the CGST Act, 2017

Question 15 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Vikramaditya Tech Labs LLP purchases a goods-carrying truck for ₹20,00,000 plus GST of ₹3,60,000. It uses the truck exclusively to transport finished products from its factory to warehouses. During the financial year, GST of ₹18,000 is incurred on general insurance and ₹36,000 on servicing and repair of the truck. The company wishes to claim credit on all three expenditure items. Determine the aggregate eligible ITC under clauses (a) and (ab) of section 17(5).

1. ₹3,60,000, representing only the purchase of the truck.
2. ₹54,000, representing insurance and repair services only.
3. ₹4,14,000, covering the truck, insurance and repairs. (correct answer)
4. Nil, because the truck is used for business transportation.

Answer: C — ₹4,14,000, covering the truck, insurance and repairs.

Explanation. The truck is intended for transportation of goods and is not a passenger motor vehicle covered by section 17(5)(a). Therefore, its purchase GST is not blocked under that clause. Further, section 17(5)(ab) covers services relating to vehicles referred to in clause (a) or (aa), not an ordinary goods-carrying truck. Eligible ITC = ₹3,60,000 + ₹18,000 + ₹36,000 = ₹4,14,000, subject to the other statutory conditions.

Where it goes wrong. Extending the passenger-vehicle and related-service restrictions to goods-carrying trucks.

Authority. Section 17(5)(a) of the CGST Act, 2017; Section 17(5)(ab) of the CGST Act, 2017

Question 16 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Nandini Real Estates purchases a seven-seater car for ₹12,00,000 plus GST of ₹2,16,000. The car is used exclusively by its senior executives to travel between construction sites, client meetings and the company's registered office. No passenger transportation service is provided to customers for consideration, and the car is not held for further sale or driving instruction. Determine the ITC treatment, assuming all general conditions are fulfilled.

1. ₹2,16,000, because the car is exclusively deployed for taxable business operations.
2. ₹1,08,000, because half of the business-use credit is available.
3. ₹2,16,000, because travel between business premises qualifies as passenger transportation.
4. Nil, because none of the taxable-supply exceptions applies to the passenger car. (correct answer)

Answer: D — Nil, because none of the taxable-supply exceptions applies to the passenger car.

Explanation. The car is a motor vehicle for transportation of persons with approved capacity not exceeding thirteen persons. The exceptions under section 17(5)(a) are further supply, taxable passenger transportation and taxable driving training. Executive travel between business locations does not constitute any such permitted activity. The entire GST of ₹2,16,000 is therefore blocked. The general business-use condition under section 16(1) cannot override the specific prohibition in section 17(5)(a).

Where it goes wrong. Equating business-related travel with the taxable passenger transportation exception.

Authority. Section 17(5)(a) of the CGST Act, 2017

Question 17 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered driving school purchases a five-seater car for ₹9,00,000 plus GST of ₹1,62,000. The car is deployed exclusively for taxable driving instruction supplied to enrolled learners. The school also incurs GST of ₹18,000 on servicing and ₹12,000 on general insurance for the same car. The school does not use the car for management travel or any other activity. Calculate the aggregate eligible ITC on the purchase and related services.

1. ₹1,92,000, comprising purchase, servicing and insurance credit. (correct answer)
2. ₹1,62,000, comprising only the tax charged on the car.
3. ₹30,000, comprising only servicing and insurance expenses.
4. Nil, because the car has an approved seating capacity below thirteen persons.

Answer: A — ₹1,92,000, comprising purchase, servicing and insurance credit.

Explanation. The five-seater car is used for taxable training on driving such motor vehicles, which is a permitted purpose under section 17(5)(a)(C). Therefore, purchase ITC of ₹1,62,000 is available. Since the underlying car is used for an eligible purpose, section 17(5)(ab)(i) also permits credit on its insurance and servicing. Service credit = ₹18,000 + ₹12,000 = ₹30,000. Total ITC = ₹1,62,000 + ₹30,000 = ₹1,92,000.

Where it goes wrong. Applying the general passenger-vehicle block without considering the driving-training exception and its effect on related services.

Authority. Section 17(5)(a)(C) of the CGST Act, 2017; Section 17(5)(ab)(i) of the CGST Act, 2017

Question 18 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

An authorised passenger-car dealer purchases three demo cars having approved seating capacity of five persons each, including the driver. GST on the cars totals ₹5,40,000. These vehicles are used by prospective purchasers for demonstration and trial runs before deciding whether to purchase similar cars. The dealer also incurs GST of ₹54,000 on insurance and ₹36,000 on servicing of the demo fleet. Determine the credit treatment under the applicable statutory exception and clarification.

1. Only ₹5,40,000 is available, as insurance and servicing remain blocked.
2. ₹6,30,000 is available because demo cars promote further supply of similar vehicles. (correct answer)
3. Nil, because demo cars are not physically transferred to customers.
4. ₹2,70,000 is available because demo vehicles qualify for partial credit.

Answer: B — ₹6,30,000 is available because demo cars promote further supply of similar vehicles.

Explanation. Circular No. 231/25/2024-GST clarifies that demo vehicles used by authorised dealers for trial runs and demonstrations promote further supply of similar vehicles. They qualify under the further-supply exception in section 17(5)(a)(A). Related insurance and servicing also qualify under section 17(5)(ab)(i), since the demo cars are used for the permitted purpose. Total eligible ITC = ₹5,40,000 + ₹54,000 + ₹36,000 = ₹6,30,000.

Where it goes wrong. Assuming that demo cars cannot qualify as further supply because they are used for demonstrations rather than immediately sold.

Authority. Section 17(5)(a)(A) of the CGST Act, 2017; Section 17(5)(ab)(i) of the CGST Act, 2017; Circular No. 231/25/2024-GST dated 10.09.2024

Question 19 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered aviation academy purchases a training aircraft for ₹70,00,000 plus GST of ₹12,60,000. It uses the aircraft exclusively for supplying taxable flying instruction to trainee pilots. The academy also incurs GST of ₹63,000 on aircraft insurance and ₹45,000 on maintenance services. The aircraft is not used for private travel, management transportation or cargo activity. Determine the aggregate credit available under the relevant exceptions.

1. ₹12,60,000, comprising only the tax on aircraft acquisition.
2. ₹1,08,000, comprising only insurance and maintenance expenditure.
3. ₹13,68,000, comprising aircraft purchase and related services. (correct answer)
4. Nil, because aircraft used for training remain blocked.

Answer: C — ₹13,68,000, comprising aircraft purchase and related services.

Explanation. Taxable training on flying aircraft is a permitted use under section 17(5)(aa)(i)(D). Hence, purchase ITC of ₹12,60,000 is eligible. The aircraft is used for a specified permitted purpose, so its insurance and maintenance also qualify under section 17(5)(ab)(i). Related-service credit = ₹63,000 + ₹45,000 = ₹1,08,000. Aggregate ITC = ₹12,60,000 + ₹1,08,000 = ₹13,68,000.

Where it goes wrong. Confusing the restriction on aircraft used for management travel with the exception for taxable flying instruction.

Authority. Section 17(5)(aa)(i)(D) of the CGST Act, 2017; Section 17(5)(ab)(i) of the CGST Act, 2017

Question 20 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered shipping company purchases two vessels. Vessel A is used exclusively for training students in navigation under taxable training contracts, while Vessel B transports the company's own industrial goods between ports. GST on Vessel A is ₹7,20,000 and GST on Vessel B is ₹10,80,000. Both vessels are received and deployed for the described purposes. Determine the total ITC available, having regard to the separate exceptions applicable to vessels.

1. ₹7,20,000, because navigation training is permitted but own-goods movement is not.
2. Nil, because both vessels fall within the blocked category under clause (aa).
3. ₹10,80,000, because only transportation of goods satisfies the exception.
4. ₹18,00,000, because both navigation training and transportation of goods qualify. (correct answer)

Answer: D — ₹18,00,000, because both navigation training and transportation of goods qualify.

Explanation. Vessel A is used for taxable training on navigating vessels and qualifies under section 17(5)(aa)(i)(C). Vessel B is used for transportation of goods, which is a separate permitted purpose under section 17(5)(aa)(ii). The goods-transportation exception does not require the goods to belong to customers. Eligible ITC = Vessel A ₹7,20,000 + Vessel B ₹10,80,000 = ₹18,00,000.

Where it goes wrong. Assuming that a vessel qualifies for the goods-transportation exception only when it earns freight revenue from carrying another person's goods.

Authority. Section 17(5)(aa)(i)(C) of the CGST Act, 2017; Section 17(5)(aa)(ii) of the CGST Act, 2017

Question 21 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered company purchases two aircraft during FY 2026-27. Aircraft A is acquired for ₹80,00,000 plus GST of ₹14,40,000 and is used exclusively for taxable passenger charter services. Aircraft B is acquired for ₹60,00,000 plus GST of ₹10,80,000 and is used exclusively for travel by the company's directors. Neither aircraft is used for goods transportation, further supply or training. Calculate the total eligible ITC.

1. ₹14,40,000, because only the passenger charter aircraft qualifies. (correct answer)
2. ₹25,20,000, because both aircraft support the company's business.
3. ₹10,80,000, because only the management aircraft qualifies.
4. Nil, because aircraft are blocked irrespective of their commercial use.

Answer: A — ₹14,40,000, because only the passenger charter aircraft qualifies.

Explanation. Aircraft A is used for taxable transportation of passengers and qualifies under section 17(5)(aa)(i)(B). Its ₹14,40,000 GST is eligible. Aircraft B is used exclusively for directors' travel and does not satisfy any statutory exception; its ₹10,80,000 GST is blocked. Aggregate eligible ITC = ₹14,40,000 + ₹0 = ₹14,40,000.

Where it goes wrong. Treating every aircraft as blocked without recognising taxable passenger transportation, or allowing management travel merely because it supports business.

Authority. Section 17(5)(aa)(i)(B) of the CGST Act, 2017

Question 22 · 2 marks · Taxation - GST Ch 07: Itc · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered trading company purchases a five-seater passenger car for ₹15,00,000 plus GST of ₹2,70,000. It uses the car exclusively for travel by its management personnel and has no business of selling vehicles, supplying taxable passenger transportation or imparting driving instruction. During the year, it incurs GST of ₹30,000 on general insurance and ₹24,000 on servicing. What is the aggregate ITC available on these expenditure items?

1. ₹54,000, comprising only insurance and servicing expenses.
2. Nil, because purchase and related services are all blocked. (correct answer)
3. ₹2,70,000, comprising only the purchase of the passenger car.
4. ₹1,62,000, comprising the vehicle and half the repair expenses.

Answer: B — Nil, because purchase and related services are all blocked.

Explanation. The five-seater passenger car falls within section 17(5)(a), and management travel is not an eligible exception. Purchase credit blocked = ₹2,70,000. Insurance and servicing relate to the same ineligible vehicle and are blocked under section 17(5)(ab). Related-service credit blocked = ₹30,000 + ₹24,000 = ₹54,000. Total blocked credit = ₹2,70,000 + ₹54,000 = ₹3,24,000. Accordingly, eligible ITC is Nil.

Where it goes wrong. Claiming the related-service credit separately even though the underlying passenger vehicle does not qualify for an exception.

Authority. Section 17(5)(a) of the CGST Act, 2017; Section 17(5)(ab) of the CGST Act, 2017

Question 23 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered travel operator purchases passenger cars having approved seating capacity of five persons each and uses them exclusively for taxable passenger transportation services supplied to customers. During the year, it incurs GST of ₹45,000 on general insurance and ₹72,000 on repairs and maintenance of these cars. The cars are not used for employee commuting or management travel. Determine the ITC available on the specified service expenses, assuming they relate entirely to the taxable passenger fleet.

1. Nil, because general insurance and repair services relating to passenger cars are blocked.
2. ₹45,000, because insurance qualifies but repairs remain blocked.
3. ₹1,17,000, because the underlying cars are used for taxable passenger transportation. (correct answer)
4. ₹72,000, because repair expenditure alone qualifies under the exception.

Answer: C — ₹1,17,000, because the underlying cars are used for taxable passenger transportation.

Explanation. Although the cars have approved capacity below thirteen persons, they are used for taxable transportation of passengers and qualify under section 17(5)(a)(B). Therefore, related general insurance, repairs and maintenance are also eligible under section 17(5)(ab)(i). Insurance credit = ₹45,000; repair and maintenance credit = ₹72,000. Total eligible ITC = ₹45,000 + ₹72,000 = ₹1,17,000.

Where it goes wrong. Applying the vehicle-related service restriction without examining the taxable passenger transportation exception applicable to the underlying cars.

Authority. Section 17(5)(a)(B) of the CGST Act, 2017; Section 17(5)(ab)(i) of the CGST Act, 2017

Question 24 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A passenger-car manufacturer and an authorised dealer separately incur GST of ₹36,000 each on repair services relating to five-seater vehicles manufactured by the same manufacturer. The manufacturer incurs the first amount under customer warranty arrangements and receives the repair invoice in its own name. The dealer incurs the second amount on its own showroom vehicles and receives the invoice in its own name. Neither party uses the vehicles for taxable passenger transportation or driving instruction. Which amount of repair-service credit is available under section 17(5)(ab)?

1. Nil, because all five-seater vehicles fall within clause (a).
2. ₹72,000, because both parties are connected with vehicle sales.
3. ₹18,000, because only half the manufacturer's repair expense qualifies.
4. ₹36,000, because the manufacturer exception applies only to the manufacturer. (correct answer)

Answer: D — ₹36,000, because the manufacturer exception applies only to the manufacturer.

Explanation. Section 17(5)(ab)(ii)(I) permits credit on specified services received by a taxable person engaged in manufacturing such motor vehicles. The manufacturer's warranty-related repair expenditure of ₹36,000 qualifies under this exception. The authorised dealer is not a manufacturer of such vehicles and does not satisfy the exception. Its ₹36,000 repair-service credit remains blocked because the vehicles are not used for a permitted purpose. Total eligible ITC = ₹36,000 + ₹0 = ₹36,000.

Where it goes wrong. Extending the manufacturer's statutory exception to an authorised dealer merely because both operate in the motor-vehicle industry.

Authority. Section 17(5)(ab)(ii)(I) of the CGST Act, 2017

Question 25 · 2 marks · Taxation - GST Ch 07: Itc · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A general insurance company settles a motor-vehicle repair claim through reimbursement. A garage issues a tax invoice in the insurance company's name for repair services having taxable value of ₹2,00,000 plus GST of ₹36,000. The policyholder initially pays the garage. Following assessment, the insurer reimburses the approved repair cost of ₹1,50,000 plus the corresponding GST. The remaining repair cost is borne by the policyholder. Determine the ITC available to the insurer under Circular No. 217/11/2024-GST.

1. ₹27,000, being 18% of the approved repair value reimbursed. (correct answer)
2. ₹36,000, being the full GST appearing on the garage invoice.
3. ₹18,000, being half the GST charged on the entire repair value.
4. Nil, because payment to the garage was initially made by the policyholder.

Answer: A — ₹27,000, being 18% of the approved repair value reimbursed.

Explanation. The insurer may claim ITC in reimbursement-mode settlements where the repair invoice is issued in its name. However, the credit is restricted to the approved repair liability reimbursed by the insurer. Approved taxable repair value = ₹1,50,000. Applicable GST = ₹1,50,000 × 18% = ₹27,000. The remaining taxable repair value of ₹50,000 and GST of ₹9,000 are borne by the policyholder. Hence, eligible insurer ITC is ₹27,000 rather than the full invoice GST of ₹36,000.

Where it goes wrong. Ignoring the approved-claim limitation and claiming GST on the portion of repairs financially borne by the policyholder.

Authority. Section 17(5)(ab)(ii)(II) of the CGST Act, 2017; Section 2(93) of the CGST Act, 2017; Circular No. 217/11/2024-GST dated 26.06.2024