Order date: 18 Aug 2024 
Parties: M/s. Eagle Security & Personnel v. Union of India & Ors.

Facts -

• Prior to 1 January 2019, GST on security services was taxable on forward charge basis, meaning the person rendering service was liable to pay tax. Post 1 January 2019, the said services have been brought under Reverse Charge Mechanism (RCM). As per the same, a registered person receiving security services is liable to pay tax if the supplier of service is any person other than a body corporate.
• The Petitioner, being a proprietor, is aggrieved by RCM because input tax paid on goods and services procured by her for rendering security services now cannot be set-off against output tax liability because these services under RCM are treated as exempt services in the hands of the Petitioner, and consequently there is no output tax liability against which Input Tax Credit (ITC) can be set-off, thereby resulting in higher cost of rendering services.
• The petitioner assailed (i) Notification No. 29 of 2018 amending Notification No. 13 of 2017 (reverse charge) on the ground that differentiating body corporates and non-body corporates is discriminatory, and sought to read down the notification to include proprietors; and (ii) the constitutional validity of Section 17(2) & 17(3) CGST Act governing ITC apportionment/exclusions.

Issue -

• Whether the RCM classification (body corporate vs non-body corporate) and the ITC apportionment scheme in Sections 17(2)–(3) violate Article 14 and warrant reading down?

Order -

• The division bench of the Hon’ble high court noted that the Section 2(82) of the CGST Act defines “output tax” in relation to a taxable person to mean the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis.
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• Further, classification between body corporate and non-body corporate is a valid policy choice with intelligible differentia and nexus; no violation of equality. The plea to read in “proprietor” alongside “body corporate” was specifically rejected.
• ITC is a statutory benefit; structure is policy. Relying on the Supreme Court’s approach (e.g., Safari Retreats reasoning), restrictions/apportionment under Sections 17(2)–(3) are a matter of legislative policy; the challenge therefore cannot succeed, and reading-down is impermissible.
• No exceptional grounds shown. The petition did not disclose manifest arbitrariness warranting constitutional interference in a tax scheme.