Input tax credit on free employee medical supplies was denied as personal consumption, not business use.

Input tax credit on medicines procured for an in-house hospital was held inadmissible where the medicines were used to provide free medical care to employees, pensioners and dependents. Although the employer bore the cost and the supplies were made under service regulations, the medicines were treated as goods used for personal consumption rather than for use in the course or furtherance of business. The blocked-credit rule therefore applied, and credit was denied under the restriction for personal consumption.

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Issues: Whether input tax credit is admissible on medicines procured for use in an in-house hospital providing medical facilities to employees, pensioners and dependents.

Analysis: The applicant maintained an in-house hospital and supplied medicines and treatment free of charge under service regulations. The medicines were used by employees, pensioners and dependents for their own medical care, and the fact that the applicant bore the cost did not change the character of the use. Credit under section 16 is available only for goods used in the course or furtherance of business, but section 17(5)(g) blocks credit for goods or services used for personal consumption. The medicines supplied for medical treatment of employees and their dependents were treated as goods used for personal consumption, so the blocked-credit provision applied.

Conclusion: Input tax credit on inward supply of medicines was not admissible.

Final Conclusion: Credit was denied because medicines used to provide free medical facilities to employees, pensioners and dependents fell within the blocked-credit restriction for personal consumption.

Ratio Decidendi: Goods used to provide free medical care to employees and their dependents constitute goods used for personal consumption and are not eligible for input tax credit notwithstanding that the employer bears the cost.

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