Eagle Security And Personnel Services ... vs Union Of India,Through The ...

Headnote AI-drafted · Reviewed and approved

The petitioner, a sole proprietor registered under the CGST Act and engaged in providing security services, challenged the constitutional validity of Section 17(2) and 17(3) of the CGST Act, 2017 and the corresponding MGST Act provisions, as well as Notification No.29 of 2018 dated 31 December 2018 amending Notification No.13 of 2017. The petitioner contended that the introduction of the Reverse Charge Mechanism (RCM) for security services with effect from 1 January 2019—applicable to suppliers other than body corporates—resulted in her being unable to set off Input Tax Credit (ITC) on inputs against any output tax liability, since supplies under RCM are treated as exempt in the hands of the supplier under Section 17(3), thereby increasing her cost of service and placing her at a competitive disadvantage vis-à-vis body corporates.

The petitioner argued that the classification excluding body corporates from the category of 'supplier of service' under RCM treated equals unequally in violation of Article 14 of the Constitution of India, and that denial of ITC infringed her right to carry on business under Article 19(1)(g). It was further submitted that the impugned provisions ran contrary to the foundational GST objective of avoiding the cascading effect of taxes and ensuring seamless transfer of credit, and that Section 17(2) and 17(3) should be read down to exclude proprietorship entities.

The Bombay High Court, after analysing the scheme of the CGST Act including Sections 16(1), 17(2), 17(3) and 49, examined the constitutional challenge and the notifications issued under the Act in the context of the RCM for security services.

Catchwords: GST · Reverse Charge Mechanism · security services · Input Tax Credit · Section 17(3) CGST Act · exempt supply · body corporate · Article 14 · Article 19(1)(g) · constitutional validity · read down · Notification No.29 of 2018 · sole proprietor · cascading effect · inverted duty structure