Input tax credit and depreciation under GST are distinct: Section 16(3) bars only the component on which depreciation is claimed.

Section 16(3) of the CGST Act bars input tax credit only on the specific tax component on which depreciation is actually claimed, as its purpose is to prevent double benefit between income-tax depreciation and GST credit. Where a banking company exercises the Section 17(4) option to avail only 50% of eligible credit and let the balance lapse, the unavailed portion is not hit by that prohibition because no depreciation is claimed on that balance. The restriction cannot be extended to deny credit on the entire tax component merely because depreciation was claimed on the non-availed portion.

---

---

Issues: Whether the prohibition in Section 16(3) of the Central Goods and Services Tax Act, 2017 applies to the entire tax component of capital goods where depreciation is claimed only on the portion of input tax credit not availed under the banking company option in Section 17(4).

Analysis: Section 16(3) bars input tax credit only on the "said tax component" on which depreciation is claimed. The provision is intended to prevent double benefit, namely, depreciation under the Income-tax Act, 1961 together with credit of the same tax component under the CGST regime. Section 17(2) restricts credit to the portion attributable to taxable supplies, while Section 17(4) creates a special option for banking companies and financial institutions to avail 50% of eligible credit and let the balance lapse. On that scheme, the unavailed 50% is treated akin to the portion attributable to exempt supplies, and no double benefit arises where depreciation is not claimed on that balance. The restriction in Section 16(3) cannot therefore be expanded to deny credit on the entire tax component merely because depreciation was claimed on the non-availed portion.

Conclusion: The prohibition under Section 16(3) applies only to the tax component on which depreciation is actually claimed, and it does not extend to the 50% input tax credit not availed under Section 17(4).

Final Conclusion: The impugned notices and the order were interfered with to the extent they proceeded on the incorrect view that depreciation on the unavailed portion of input tax credit barred credit on the entire tax component, while leaving the petitioner to pursue the statutory remedy against the remaining disputes.

Ratio Decidendi: Where a banking company lawfully opts for the 50% credit mechanism under Section 17(4), Section 16(3) disallows credit only for the specific tax component on which depreciation is claimed and cannot be used to deny credit on the balance unavailed portion.

---