TaxTMI 
TaxTMI 
2025 (8) TMI 1127
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....easonable basis for such classification. (b) that this Hon'ble Court be pleased to issue a writ of Mandamus or Certiorari, or any other writ, order or direction quashing and setting aside sub-section 17(2) of the CGST Act and MGST Act introduced vide the Impugned Notifications to the extent it denies the benefit of ITC claim to the Petitioner for being ultra vires of the CGST Act, MGST Act and Rules made thereunder and the Constitution." 3. The Petitioner is a sole proprietor registered under the CGST Act with effect from 1 July 2019. Grievance of the Petitioner:- 4. 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, under the head "Investigation and Security Services". Post 1 January 2019, the said services have been brought under Reverse Charge Mechanism (RCM), meaning thereby that the person receiving services must pay tax, based on Notification No.29 of 2018 dated 31 December 2018 which in turn amends Notification No. 13 of 2017 dated 28 June 2017. As per the above Notifications, a registered person located in a taxable territory receiving security services is liabl....
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....sel refers to some decision of the Supreme Court, neither the citation nor copy of the same was handed over at the time of hearing or towards the end of day. 7. We have heard learned counsel for the Petitioner. Analysis & Conclusion:- A. Scheme of the Central Goods and Services (CGST) Act, 2017:- 8. The GST regime of indirect taxation came into effect from 1 July 2017. The relevant provisions for the purpose of this petition are as under: 9. Section 16(1) of the CGST Act reads as under: - "16. Eligibility and condition for claiming input tax credit:- (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of the input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person." 10. Section 17(2) and (3) of the CGST Act reads as under:- "17. Apportionment of credit and blocked credits:- (1) ... ... ... (2) Where the goods or services or both....
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....egories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. 14. Section 16 provides for eligibility, conditions and restrictions for taking ITC. As per Section 16(2), benefits of ITC can be claimed only on fulfillment of the conditions specified therein. The restriction are provided in Section 17 of the CGST Act. 15. Section 17 provides for apportionment of credit and blocked credits. This section restricts the quantum of ITC. 16. Section 17(1) provides that where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the ITC as is attributable to the purposes of his business. 17. Section 17(2) provides that where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt....
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....nomic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the Legislature. Every legislation, particularly in economic matters, cannot provide for all possible situations or anticipate all possible abuses. 22. As held in R. K. Garg vs. Union of India (1982) 133 ITR 239 (SC), every legislation particularly in economic matters is essentially empiric and it is based on experimentation. There may be crudities, inequities and even possibilities of abuse but on that account alone it cannot be struck down as invalid. These can always be set right by the Legislature by passing amendments. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions. Laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. Moreover, there is always a presumption in favour of the constitutionality of a statute and the burden is upon he who attacks it to show that there has been a clear transgression of the constitutional principles. The Legislature understands and correctly appreciat....
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....ed (2004) 10 SCC 201. 26. In matters of taxation, the Court must defer to legislative judgment and policy. Where a statute empowers the Government to grant exemption from tax to any specified class, in public interest, the Court would not question the policy of the Government in exercising this power or interfere merely because the exemption granted has been confined to new units and not extended to all units doing the same business. Mere excessiveness of tax or the absence of corrective machinery would not render the tax as an unreasonable burden and thereby violative of Article 19(1)(g). 27. A taxing statute is not per se regarded as a restriction on freedom under Article 19(1)(g) even if it imposes some hardships in individual cases. The mere excessiveness of tax or even the circumstances that its imposition might tend towards the diminution of earnings or profits of the persons of incidence does not, per se, and without more, constitute violation of rights under Article 19(1)(g). Courts do not usually interfere with attacks on the ground of it being excessive or it imposes a heavy burden on trade and commerce or that the profits of business are greatly reduced thereby. ....
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....n would result into palpable arbitrariness on the touchstone of Article 14 of the Constitution of India. Article 14 prohibits class legislation, but not reasonable classification or sub-classification. 31. The Supreme Court has time and again reiterated that Courts do not sit in appeal over the decisions of the Government to do merit review of the subjective decision and that Government decisions concerning public revenue have an intricate economic value attached to them and to elevate the standard of review on the basis of subjective understanding of the subject matter being extraordinary would be dehors the review jurisdiction. The Courts will not transgress into the field of policy decision and strike down a policy decision taken by the Government merely because it feels that another decision would have been fairer or more scientific or logical. The State is entitled to pick and choose the subject matter of tax and the benefits to be granted and the persons to whom the benefit is to be granted. 32. The input tax credit is in the nature of a benefit or concession extended to a person under the statutory scheme. Even if it is held to be an entitlement it is always subject to....
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....individual auto rickshaw drivers, bus operators etc. irrespective of the mode of booking availed of by the consumer. The challenge was posed on the basis of Articles 14 and 19(1)(g) to the withdrawal of exemption which was rejected, and when dealing with Article 14 of the Constitution of India the Delhi High Court observed that the principle of equality does not mean that every law must have universal application for all persons who are not by nature, attainment or circumstances in the same position. The Court further observed that it would mean that the State has the power to classify persons for legitimate purposes and the Legislature is competent to exercise its discretion and make classification, thereby every classification is in some degree likely to produce some inequality, but mere production of inequality is not enough to make the provision unconstitutional. 37. The Bombay High Court in the case of Dharmendra Jani vs. Union of India & Ors. (2023) 113 GSTR 281 (Bom) rejected the contention based on Article 14 by holding that intermediary services provided by the Petitioner to its overseas customers are subjected to GST whereas in the case of service providers like market....
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....e Supreme Court in the case of Amalgamated Tea Estates Co. Ltd. vs. State of Kerala AIR 1974 SC 849. 41. In the case of All India Haj Umrah Tour Organizer Association Mumbai vs. Union of India & Ors. (2022) 103 GSTR 434 (SC) the Supreme Court was posed with the submission on Article 14 of the Constitution of India since exemption was given to the Haj Committee for organising Haj pilgrimage but not to private tour operator. The Supreme Court rejected the submission by the private tour operator by observing that Haj Committee is a separate class and private tour operator is a separate class and therefore exemption given from GST to Haj pilgrimage tour organized by the Haj Committee and not to private tour operator was held to be based on reasonable classification and not violative of Article 14 of the Constitution of India. 42. In Amarendra Kumar Mohapatra & Ors. vs. State of Orissa & Ors (2014) 4 SCC 583, where the Constitution Bench dealt with the question of classification that was under-inclusive held that having regard to the real difficulties under which the Legislature operates, the Courts have refused to strike down legislation on the ground that they are under-inclusiv....
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....ss environment and has no relation whatsoever to the constitutional framework of law. A provision of law cannot be struck down or read down to make a business competitive for a particular type of entity. The provisions of law are 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) guarantees freedom to carry on business or profession and not the competitiveness of a business entity in the market. Admittedly, it is not the case of the Petitioner that by virtue of the impugned notification/provision there is a bar on him to carry on his business. Therefore, even on this count, we do not see any 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. 48. The Hon'ble Supreme Court in the case of M/s. S. Kodar vs. State of Kerala AIR 1974 SC 2272 observed that it is not necessary that a dealer should be enabled to pass on the incidence of tax on sale to the purchaser in order that it might be a tax on sale of goods. The Court further observed that it cannot be said that because th....
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.... court where the meaning is clear not to give effect to it merely because it would lead to some hardship. It is the duty imposed on the courts in interpreting a particular provision of law to ascertain the meaning and intendment of the legislature and in doing so, they should presume that the provision was designed to effectuate a particular object or to meet a particular requirement. (Re: Firm Amar Nath Basheshar Dass v. Tek Chand.)" 52. The benefit of credit of ITC is available only if there is output tax liability. In RCM there is no output tax liability because it is treated as exempt and, therefore, in tune with the objective of GST, credit of ITC cannot be claimed in the absence of liability but same can be claimed by the recipient of service. E. Submissions on Inverted Duty:- 53. The comparison by the Petitioner with the provisions relating to inverted duty structure is misconceived. In that case there is actual payment of output tax, rate of which is less compared to input tax and therefore is entitled to refund under Section 54 of the CGST Act. In the instant case, there is no output tax liability and there is no provision of refund in case of cases covered by RCM....
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.... shift the liability to the person receiving the services. 57. There could be varied reasons administratively, economically, convenience, etc. which goes into the decision-making process before such services are brought under the purview of RCM. The objective of bringing certain goods and / or services within the ambit RCM is to safeguard, administrative convenience, additional source of revenue, recovery from persons outside jurisdiction, difficulty in collection of tax, economy in collecting tax from few assessees compared large number of assessee, supply of services from unregistered person to registered person etc. 58. Therefore, the GST Council, which is an expert body, after deliberation recommends the Central Government, the services, persons / goods etc on which tax can be collected on RCM basis. This exercise cannot be faulted on constitutional grounds and certainly not by this Court under Article 226 of the Constitution of India. The said exercise and decision-making process is best left to the framers of law and the administrators and experts who are well versed with ground realities before any notification is issued under Section 9(3) of the CGST Act. G. Decisi....
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....(c) and (d) of Section 17(5) of the CGST Act apply only to this class of cases. It was further held that the right of ITC is conferred only by the statute and unless there is a statutory provision ITC cannot be enforced. It is a creation of statute and thus no one can claim ITC as a matter of right, unless it is expressly provided in the statute. The Supreme Court also observed that the Legislature can always carve out exceptions to the entitlement of ITC under Section 16 of the CGST Act. The Court further observed that they will have to go into complex questions involving fiscal adjustments of diverse elements to decide why transactions covered by clauses (c) and (d) are separately classified and the Court has no experience or expertise to embark upon the said exercise. Therefore, the Court rejected the contention that clauses (c) and (d) of Section 17(5) of CGST are discriminatory. 62. In paragraph 79 of the above judgment, the Supreme Court further observed that while dealing with a taxing statute it can always be said that ideally, a particular provision ought not to have been incorporated or ought to have been incorporated with a modification. Even if this can be said, per ....