ITC Allowed on Insurance for Stock & Premises; Section 17(5) Block Limited to Motor Vehicles.

Issue

Whether Input Tax Credit (ITC) availed on insurance premiums for stock, plant & machinery, and business premises (under a Standard Fire and Special Perils Policy) can be denied by treating it as “motor vehicle insurance” under the blocked credit provisions of Section 17(5)(b) of the CGST Act.

Facts

Petitioner: A manufacturer of electronic materials registered under CGST/GGST (likely Arraycom India Ltd. based on recent Gujarat HC rulings).
The Claim: The petitioner availed ITC on insurance premiums paid for policies covering stock-in-trade, factory premises, and plant & equipment. The policies provided coverage for risks like fire, earthquake, and special perils (STFI).
The Denial: The GST department issued a Show Cause Notice (SCN) and subsequently passed an order disallowing this ITC.
The Basis: The adjudicating authority treated these insurance services as falling under the blocked category of “insurance of motor vehicles” under Section 17(5), despite the policy documents clearly showing they covered non-motor assets.
Consequence: The department confirmed the demand and initiated recovery by attaching the petitioner’s bank account.

Decision

The Gujarat High Court ruled in favour of the assessee and quashed the assessment order and the recovery notice.
Factually Incorrect: The Court found the order to be “perverse” and contrary to the record. The insurance policy documents indisputably covered stock, building, and equipment, not motor vehicles.
Scope of Section 17(5): The Court clarified that the restriction on ITC under Section 17(5)(b) (regarding insurance, repair, and maintenance) applies only to insurance related to motor vehicles, vessels, or aircraft.
No Block on General Insurance: There is no provision in the GST Act that blocks ITC on general insurance taken for business assets like factories, warehouses, or inventory. Such expenditure is incurred in the “course or furtherance of business” and is fully eligible for credit under Section 16.
Lack of Jurisdiction: Disallowing eligible credit by misclassifying the asset type was held to be an error of jurisdiction.

Key Takeaways

Asset Type Matters: The nature of the insured asset determines ITC eligibility. Insurance for Vehicles = Generally Blocked (unless for specific eligible purposes). Insurance for Business Assets (Building/Stock) = Allowed.
Read the Policy: Tax officers cannot ignore the actual terms of the insurance policy. Treating a “Standard Fire and Special Perils” policy as “Motor Vehicle Insurance” is a factual error that vitiates the demand.
Section 17(5) is Specific: The blocking provisions are specific and cannot be expanded to cover other business expenses. If the expense isn’t explicitly listed in Section 17(5), the credit is generally available.

HIGH COURT OF GUJARAT

Arraycom (India) Ltd.

State of Gujarat^*

BHARGAV D. KARIA and Pranav Trivedi, JJ.

R/SPECIAL CIVIL APPL. NO. 11979 of 2025

NOVEMBER 13, 2025

Chaitanya S Joshi for the Appellant. Ms Shrunjal Shah, AGP for the Respondent.

JUDGMENT

Bhargav D. Karia, J.- Heard learned advocate Mr. Chaitanya S. Joshi for the petitioner and learned Assistant Government Pleader Ms. Shrunjal Shah for the respondents.

2. Rule returnable forthwith. Learned Assistant Government Pleader Ms. Shrunjal Shah waives service of notice of rule on behalf of the respondent State.

3. By this petition under Article 226/227 of the Constitution of India, the petitioner has prayed for the following reliefs:

“a)

Issue a writ of certiorari or mandamus or any other appropriate writ, order or direction quashing and setting aside the impugned order dated 07.02.2025 (Annexure A) passed by the Respondent No. 2 and holding that the ITC denied under Section 17(5) of the CGST Act is wrongly classified and fully admissible; &

(b)

Issue a writ of mandamus or appropriate direction to quash and set aside the notice dated 09.06.2025 (Annexure F) issued by Respondent No. 2 under S. 17(1)(c) to the Respondent No. 3 Bank and direct respondent no.3 bank to immediately release Rs. 1,72,884 held in the Petitioner’s bank account; &

(c)

During the pendency and final hearing of the present petition stay the operation and implementation of the impugned order dated 07.02.2025 (Annexure A) passed by the Respondent No.2 as well as direct respondent no.3 bank not to deposit the said amount with Government in compliance with aforesaid order; &

(d)

Pass such other and further orders as may be deemed just and proper in the interest of justice.”

4. Brief facts of the case are that the petitioner Arraycom (India) Limited which is registered under the Central Goods and Services Tax Act, 2017 and Gujarat Goods and Services Tax Act, 2017 is having business divisions such as (i) Thick film material- manufacturing conductive paste, resistor paste, insulation paste etc.; (ii) Solar Power Division: installation of Roof top solar systems for Residential, industrial and commercial purposes and (iii) System Integration: in the field of professional electronics encompassing satellite communications, terrestrial communication, broadcast engineering, signals intelligence etc.

5. For the Financial Year 2020-2021, the petitioner filed returns and claimed Input Tax Credit (ITC) in accordance with the law. One such claim was for Input Tax Credit (ITC) availed on the premium paid towards an insurance policy taken from United India Insurance Co. Ltd., covering the stock-in-trade and the business premises of the petitioner.

6. An intimation dated 25.10.2024 in Form DRC-01A under section 73(3) of GGST ACT, 2017 read with CGST ACT 2017 was issued by the respondent No.2. Subsequently adjudication was initiated and show cause notice in Form DRC-01 under section 73(1) was issued on 13.11.2024.

7. It is the case of the petitioner that the demand was primarily based on the disallowance of ITC against the premium paid to United India Insurance Co. Ltd. for stock and premises insurance policy which was mistakenly classified as motor vehicle insurance, allegedly falling under the ineligible category of Section 17(5) of the GST Act.

8. The petitioner submitted a detail reply in Form DRC-06 dated 22.11.2024 enclosing the insurance policy and invoices, stating that the policy covers stock-in-trade and business premises, not motor vehicles, hence, the ITC was availed lawfully and reflected appropriately in returns in Forms GSTR-3B and 2A and there was no over-claim or mismatch between returns filed and invoices.

9. It is the case of the petitioner that the said two policies dated 26.10.2020 issued by United India Insurance Co. Ltd. vide policies nos. 0607001120P108360334 and 0607001120P108360122 are both standard fire and special peril policies wherein it is specifically mentioned that the risk covered under the said policies is in respect of ‘Electronic Goods Manufacturing/Assembly’.

10. It is the case of the petitioner that while all other proposed demands in the show cause notice in issued in Form DRC-01 were dropped regarding under declaration of output tax and scrutiny of interest due to late payment, however, the department confirmed the demand of Rs.1,72,884/- [Tax Rs.85,692/- CGST Rs.42,846/- + SGST Rs.42,846/-], Interest of Rs.67,192/-, Penalty of Rs.20,000/-solely on the alleged ineligible ITC under Section 17(5) of the CGST Act.

11. On 07.02.2025 the respondent No. 2 passed an order under Section 73 of the CGST Act uploaded on the GST portal in Form DRC-07, disallowing the said ITC by classifying the insurance premium as relating to motor vehicles, and accordingly applying Section 17(5) of the CGST Act, 2017.

12. It is the case of the petitioner that pursuant to the DRC-07 order, and without affording any further hearing or clarification, the respondent No.2 initiated coercive recovery by issuing communication to the respondent no.3 Bank on 09.06.2025 under Section 79(1)(c) of the Act, attaching and withholding a sum of Rs.1,72,884/- from the petitioner’s cash credit Account bearing No. 30677485708 and further directing the respondent no.3 bank to pay the said sum of amount to Government forthwith.

13. It is the case of the petitioner that that after the impugned order was passed on 07.02.2025, petitioner could have availed the statutory remedy of filing appeal under Section 107 of the CGST Act within a period of 90 days that is till 06.05.2024 and additional grace period of one month elapsed on 06.06.2025, however, as the responsible officer of the petitioner company was on leave and due to his personal reasons, the said order could not be challenged and once he resumed duty in first week of May 2025, the petitioner company sought legal advice as to the possible recourse against the said order. However, till then the limitation period as well as the grace period for approaching the appellate authority had already lapsed. Thus, the statutory remedy became unavailable to the petitioner due to the lapse of the maximum condonable limitation period of four months ending on 07.06.2025.

14. Thereafter, the petitioner company was informed about the aforementioned coercive recovery action of respondent no.2 of withholding of the disputed amount from the account of petitioner by telephonic communication on 07.07.2025.

15. It is the case of the petitioner that in the third week of July 2025, the petitioner again sought legal advice as to the possible course of action that can be adopted challenging the impugned order as well as the recovery action. The petitioner received the legal opinion from concerned advocate in the fourth week of July 2025 that it is a fit case for challenging before this Court under writ jurisdiction. Thereafter some time was spent in preparation of the present petition and accordingly the same has been filed thereafter.

16. Learned advocate Mr. Chaitanya Joshi for the petitioner submitted that the insurance policy was taken by the petitioner for securing stock in trade and business premises and not the motor vehicle and therefore, the respondent could not have invoked the provisions of section 17(5)(b) of the GST ACT.

17. Learned advocate Mr. Joshi referred to the provisions of section 17(5) which clearly provides that only in cases where input tax credit has been sought in respect of motor vehicle, credit is not allowable where as in facts of the case, the insurance policy was for stock in trade and premises and therefore, the impugned order is bad in law.

18. It was submitted that the appellate remedy available to the petitioner has expired and therefore, this writ petition is filed as the respondent no.2 has attached the bank account of the petitioner without resorting to the remedy available under Rule 145 of the CGST Rules, 2017 and without quantifying whether any demand is sustainable post clarification. It was therefore, submitted that the attachment order dated 09.06.2025 of the bank account of the petitioner is arbitrary and liable to be quashed and set aside as the dispute revolves around an interpretative issue and the quantum of input tax credit is modest and therefore, no coercive action ought to have been taken by the respondent authorities.

19. On the other hand, learned Assistant Government Pleader Ms. Shrunjal Shah for the respondent State could not controvert the fact that the respondent authorities have wrongly interpreted the provisions of section 17(5)(b) of the GST Act considering the insurance policy of motor vehicle which is admittedly for stock and premises of the petitioner.

20. Having heard the learned advocates for the respective parties and considering the facts of the case and on perusal of the insurance policy placed on record at Annexure-E from page nos. 69 to 75 of the paper book, it is found that insurance policies are for stock and premises of the petitioner for STFI cover and earthquake and not for motor vehicle. The description of the property mentioned in the insurance policy also refers to the manufacturing equipment.

21. Provision of section 17(5) of the GST Act reads as under:

“5) Notwithstanding anything contained in sub- section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

[(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver).”

22. It is clear from the above provision that it is applicable only in cases where input tax credit has been sought in respect of motor vehicle. The findings given by the respondent in the impugned order reads as under:

“2.2.3(iii) Findings:

On the basis of submission made, and verification carried out of the available facts and information, the findings are as follows:

Observation of this office: Taxpayer in his reply submitted that he has not claimed any ITC pertaining to Motor Vehicle Insurance Service or Airlines travel. It has been stated that the said contention can also be verified from the short availment of ITC in GSTR 3B compared to GSTR 2A. The taxpayer has also furnished ITC availment statement of the relevant period to justify the claim. Submitted reply by taxpayer has been examined. Upon verification of the ITC availment statement of the taxpayer for the relevant tax period furnished by him, it has been noted that he has availed ineligible ITC of Motor Vehicle Insurance of one invoice pertaining to the month of October 2020 from the supplier namely UNITED INDIA INSURANCE COMPANY LIMITED in the tune of 85692/-(Rs. 42846/- for CGST and 42846/- for GGST). In view of the same, demand order in form DRC-07 is proposed for the recovery of Excess claim of ineligible ITC u/s 17(5) in the tune of Rs. 85692/- (Rs. 42846/- for CGST and 42846/- for GGST) along with applicable interest of Rs. 67192/-u/s 50 and penalty of Rs.20000/-under section 73(8) & (9).”

23. From the above findings, it is clear that the respondent has not considered the insurance policy of the petitioners which is for stock and the property and not for motor vehicle.

24. In such circumstances, the above findings are contrary to the facts and hence liable to be quashed and set aside.

25. It is pertinent to note that only the addition in respect of input tax credit on the insurance premium paid by the petitioner is made in the impugned order and other proposed additions are dropped. In view of above undisputed facts emerging from the record, the respondent could not have passed the impugned order by making addition on incorrect facts. Therefore, this petition is entertained in such glaring facts as the respondent could not have assumed jurisdiction to disallow ITC on insurance premium which is not for motor vehicle.

26. The impugned order and impugned notice are therefore, quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to costs.