The Bombay High Court upheld the denial of Input Tax Credit (ITC) on security services under Reverse Charge Mechanism (RCM).
A division bench of Justice M. S. Sonak and Justice Jitendra Jain upheld the validity of Sections 17(2) and 17(3) of the CGST and MGST Acts and the related notifications which classify security services provided by non-corporate entities as taxable under RCM. The judgment was reserved on August 5 and pronounced on August 18, 2025.
The petitioner/assessee, Eagle Security, represented by proprietor Veena Sharma, contended that until January 1, 2019, security services were taxed under the forward charge system where service providers paid GST and could avail ITC. After amendments via Notification No. 29/2018, non-corporate suppliers (like proprietorships) came under RCM, making the service recipient liable to pay GST. Consequently, the petitioner could no longer set off ITC against output tax, increasing costs and allegedly affecting competitiveness.
The firm argued that this classification violated Article 14 (equality) and Article 19(1)(g) (freedom to carry on business) of the Constitution.
The bench relied on established Supreme Court precedents emphasizing judicial restraint in economic and taxation matters.
The Court held that corporates and non-corporates form distinct classes. Differential tax treatment is permissible as long as it has a rational nexus with legislative objectives. Similar distinctions exist under income tax laws. All proprietorships are treated equally under RCM. The absence of uniform treatment with corporates does not amount to unconstitutional discrimination. The denial of ITC does not prohibit carrying on business; it merely impacts competitiveness. The Court clarified that fundamental rights protect the right to conduct business, not guaranteed profitability or competitive advantage.
Referring to cases like R.K. Garg v. Union of India and Hoechst Pharmaceuticals v. State of Bihar, the bench reiterated that tax laws are policy choices of the legislature and courts should not intervene unless there is palpable arbitrariness.
The Court also noted that the petitioner obtained GST registration in July 2019, well after the RCM regime was notified, indicating knowledge of the applicable tax scheme.
Case Details
Case Title: M/s. Eagle Security & Personnel Versus Union of India
Case No.: Writ Petition No.1687 Of 2024
Date: 18 August 2025
Counsel For Petitioner: Shreyas Shrivastava (through VC) a/w Mr. Saurabh R. Mashelkar
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