Bombay High Court upholds validity of Section 17(2) & (3) CGST Act, holding denial of ITC under reverse charge as constitutional and based on intelligible classification

Case Summary

Case Title: M/s. Eagle Security & Personnel Services v. Union of India & Ors.
Court: Bombay High Court
Petition No.: WP No. 1687 of 2024
Category of Dispute: Input Tax Credit (ITC) – Constitutional validity of Section 17(2) and 17(3) CGST/MGST Act and RCM classification
Date of Judgment: 18 August 2025
Relevant Sections: Sections 9(3), 16, 17(2), 17(3), 49, 2(62), 2(82) of CGST Act, 2017; Notification No. 29/2018-CT dated 31.12.2018 amending Notification No. 13/2017-CT.

Facts (Paras 2–6)

The petitioner, a sole proprietor engaged in providing security services, challenged the denial of input tax credit (ITC) arising from services brought under reverse charge mechanism (RCM) from 1 January 2019. Prior to that date, security services were under forward charge. The grievance was that while recipients of service could claim ITC, the petitioner could not set off GST paid on inputs against output tax since Section 17(3) treated RCM supplies as exempt in the supplier’s hands. This, it was argued, increased service cost and violated Articles 14 and 19(1)(g) of the Constitution.

Questions Raised

1. Whether Section 17(2) & 17(3) of CGST/MGST Act and Notification 29/2018 treating RCM services as exempt and denying ITC were ultra vires the Constitution?

2. Whether classification between body corporates and non-body corporates for applicability of RCM violates Article 14?

3. Whether denial of ITC violates Article 19(1)(g) by affecting competitiveness of business?

Observations (Paras 19–64)

• On legislative competence and judicial review: Fiscal statutes enjoy wide latitude. Courts must defer to legislative wisdom unless provisions are palpably arbitrary (paras 20–24).

• On ITC nature: ITC is not an absolute right but a statutory concession subject to restrictions in Sections 16–17 (para 32).

• On Article 14 challenge: Body corporates and non-body corporates form distinct classes; classification has reasonable nexus with tax administration convenience (paras 33–38). Reliance placed on Uber India (Delhi HC, 2023), Dharmendra Jani (Bom HC, 2023), All India Haj Umrah Tour Organizer (SC, 2022), Safari Retreats (SC, 2025), etc.

• On Article 19(1)(g): Freedom of business does not guarantee competitiveness. Petitioner applied for GST registration with knowledge of RCM regime, hence cannot allege violation (paras 45–49).

• On cascading effect argument: Seamless credit exists in the chain since recipient can avail ITC; denial to supplier under RCM is consistent with scheme (paras 54–57).

• On reading down: Clear statutory provisions cannot be read down unless vague or ambiguous. Sections 17(2) and 17(3) are explicit; thus no scope for judicial modification (paras 63–64).

Judgment (Paras 65–66)

The Bombay High Court dismissed the writ petition. It upheld the constitutional validity of Section 17(2) and 17(3) CGST Act, MGST Act, and Notification 29/2018. The Court ruled that denial of ITC to suppliers under RCM is neither discriminatory nor violative of fundamental rights.

Table of Cases Referred

Between Fine Lines

For trade, this ruling underscores that ITC under GST is not a fundamental right but a statutory concession. Suppliers of services under RCM cannot claim ITC on their input costs; only recipients paying GST can avail it. Businesses must factor this into pricing models, as Courts will not intervene to ensure competitiveness or compensate for higher costs arising from legislative choices.

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