GST notifications on RCM denying ITC on output security services were constitutionally valid under Articles 14 or 19(1)(g)

Eagle Security & Personnel Services Vs Union of India (Bombay High Court)

Conclusion: In RCM there was no output tax liability because it was treated as exempt and, therefore, in tune with the objective of GST, credit of ITC could not be claimed in the absence of liability but same could be claimed by the recipient of service. A provision of law could not be struck down or read down to make a business competitive for a particular type of entity.

Held: Assessee was aggrieved by RCM because input tax paid on goods and services procured by her for rendering security services now could not be set-off against output tax liability because these services under RCM were treated as exempt services in the hands of the assessee, and consequently there was no output tax liability against which Input Tax Credit (ITC) could be set-off, thereby resulting in higher cost of rendering services. Assessee submitted that on account of the impugned provisions and the Notification issued, assessee was unable to compete since assessee was now not entitled to avail ITC, thereby resulting in increased cost of rendering service. Therefore, the assessee’s right to carry on business under Article 19(1)(g) of the Constitution of India was violated. Also, discrimination between body corporates (outside RCM) and non-corporates (within RCM) violates Article 14 and contrary to the objective of GST to ensure seamless credit and avoid cascading effect. It was held that the benefit of credit of ITC was available only if there was output tax liability. In RCM there was no output tax liability because it was treated as exempt and, therefore, in tune with the objective of GST, credit of ITC could not be claimed in the absence of liability but same could be claimed by the recipient of service. A provision of law could not be struck down or read down to make a business competitive for a particular type of entity. The provisions of law were to be tested on the touchstone of the Constitution of India and not on the touchstone of competitiveness in the business environment. Article 19(1)(g) guaranteed freedom to carry on business or profession and not the competitiveness of a business entity in the market, stated the bench. Admittedly, it was not the case of the assessee that by virtue of the impugned notification/provision there was a bar on him to carry on his business. Therefore, even on this count, there was no reason for reading down or quashing the impugned provisions challenged in the writ petition or it being violative of Article 19(1)(g) of the Constitution of India.