Order of Operations: Block First, Then Apportion

Order of Operations explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

A business with 30% exempt turnover buys a car on which credit is blocked. Does it reverse 100% of that credit, or 30%?

The answer is 100%, and Rule 42's own notation says so — but the error is common enough to be worth setting out precisely.

Section 17(5) blocked credit is removed first, as T3 in Rule 42, before the common credit C2 is computed. Only what survives that removal is apportioned between taxable and exempt use. The sequence is fixed by the formula itself: C1 = T − (T1 + T2 + T3), then C2 = C1 − T4, then the D1 and D2 reversals apply to C2. Blocked credit never reaches C2.

The sequence in Rule 42

T3 comes out at the C1 stage. By the time C2 is computed, blocked credit is already gone.

Why the order is what it is

Look at the opening words of s.17(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..."

A non-obstante clause over the granting provisions. Credit on a blocked item is never available at all — it does not become available and then get apportioned.

Sections 17(1) and 17(2), by contrast, are restrictions on available credit. They operate on credit that exists.

So blocked credit is not part of the pool being apportioned. It never entered it.

The error, quantified

A business with exempt turnover of 30% of total turnover, in a month with:

• total input tax T = ₹10,00,000
• of which blocked under s.17(5) = ₹1,00,000
• no exclusively non-business or exclusively exempt credit
• exclusively taxable T4 = ₹4,00,000

Correct treatment:

• C1 = 10,00,000 − 1,00,000 = ₹9,00,000
• C2 = 9,00,000 − 4,00,000 = ₹5,00,000
• D1 = 30% × 5,00,000 = ₹1,50,000
• D2 = 5% × 5,00,000 = ₹25,000
• Credit retained = 4,00,000 + (5,00,000 − 1,75,000) = ₹7,25,000
• Credit not taken or reversed = ₹2,75,000

Incorrect treatment — blocked credit left in the pool:

• C1 = ₹10,00,000
• C2 = 10,00,000 − 4,00,000 = ₹6,00,000
• D1 = 30% × 6,00,000 = ₹1,80,000
• D2 = 5% × 6,00,000 = ₹30,000
• Credit retained = 4,00,000 + (6,00,000 − 2,10,000) = ₹7,90,000

The error overstates retained credit by ₹65,000 in one month — the ₹1,00,000 of blocked credit less the ₹35,000 that happened to be reversed through D1 and D2. Over a year, ₹7.8 lakh.

And it is not a timing difference. It is wrongly availed credit, with interest under s.50(3) where utilised. Interest on wrongly availed ITC →

The same sequence in Rule 43

Rule 43 follows the same logic for capital goods:

• capital goods used exclusively for non-business or exempt — no credit at all;
• capital goods used exclusively for taxable — full credit;
• the rest enter Tc, the common pool.

Blocked capital goods — a motor vehicle under s.17(5)(a), a building under s.17(5)(d) — never enter Tc. They are outside the rule entirely, because there is no credit to apportion. Rule 43: capital goods →

Where to record it

GSTR-3B Table 4(D)(1) — ineligible credit under s.17(5). It is reported as ineligible, not as a reversal in Table 4(B).

That distinction matters, because Table 4(B)(2) reversals are tracked for reclaim in the Electronic Credit Reversal and Re-claimed Statement, and blocked credit is never reclaimable. Blocked, reversed, ineligible →

GSTR-9 — either Table 7E (reversal under s.17(5)) where it was availed and then reversed, or Table 8F (available but ineligible) where it was never availed. Be consistent across years.

Key takeaways

• Blocked credit is removed as T3, before C1 — it never enters the common pool.
• s.17(5) opens with a non-obstante clause over s.16(1), so the credit never existed.
• Leaving blocked credit in the pool overstates retained credit by the un-apportioned balance.
• The same sequence applies in Rule 43 for capital goods.
• Report blocked credit as ineligible in GSTR-3B Table 4(D)(1), not as a reversal.
• Blocked credit is never reclaimable.

Read next

• Rule 42 Worked: The Monthly Formula and Annual True-Up
• Section 17(1) and 17(2): Two Apportionments
• Blocked, Reversed, Ineligible: Three Words, Three Meanings
• Rule 43: Capital Goods and the Sixty-Month Rule

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act and Rules as amended to 31 March 2026 (ICAI Bare Law, 12th edition) and the ICAI Handbook on Blocked Credit under GST (November 2025).