Should a donut or any other bakery product sold by ‘Mad-over-Donuts’ be treated as a restaurant service and charged 5 per cent GST? Or it should be taxed 18 per cent GST by not classifying donut chains as restaurants at all?
The Karnataka High Court (HC) will ponder over it and take a call in the next few days as it stayed a Goods and Services Tax (GST) demand of over ₹50 crore against the donut outlet on Friday.
Food items sold outside a restaurant setting invite 18 per cent GST, while those served in restaurants are charged 5 per cent GST.
Justice SR Krishna Kumar heard the case raising the question whether these products should be classified under restaurant services, attracting a concessional 5 per cent GST rate, or as bakery goods, which might attract a different tax treatment. A copy of the order was uploaded on Monday.
Himesh Foods (‘Mad Over Donuts’), represented by Advocate Abhishek A Rastogi, told the court that the supply of food products like donuts and cakes constitute a composite supply of services, as defined under the CGST Act.
They said that the provision of food at restaurants, eateries, canteens, and messes — whether consumed on-premises or taken away — fall under the category of restaurant services, which are taxed at a lower GST rate of 5%.
They also referred to a recent interim order of the Bombay High Court, which said that such supplies could be considered services under GST law.
The Karnataka High Court said that since there was a prior undertaking by the tax authorities before the Bombay High Court, assuring that no coercive action would be taken while the classification issue was under consideration, the same should be applicable here as well.
The court emphasised the importance of judicial consistency and agreed that no precipitative or coercive measures could be pursued by Karnataka’s GST authorities during the pendency of the case.
The next date of hearing is now on June 6.
“… in the light of the undertaking given by the respondents (tax authorities) in relation to the very same petitioner (‘Mad Over Donuts’) before the Bombay High Court, respondents are directed not to take any precipitative/coercive steps till the next date of hearing,” the order said.
An tax expert said, “The company (Mad Over Donuts) pointed out that the Directorate General of GST Intelligence (DGGI) in Mumbai had already issued a consolidated notice covering similar tax issues across multiple states, including Karnataka. Despite this, the Karnataka State GST authorities attempted to raise a separate demand. The court’s decision to grant relief to Mad Over Donuts highlights the importance of businesses monitoring overlapping tax actions and taking prompt steps when faced with duplicate proceedings.”
