In a move which is likely to have potential repercussions for the food and beverage industry, especially bakery businesses, the Karnataka High Court on April 25 heard arguments in a pivotal tax classification dispute regarding the Goods and Services Tax (GST) treatment of donuts, cakes, and other bakery products.
The case of Mad Over Donuts, which was heard by Justice SR Krishna Kumar, on the pretext whether these products should be classified under restaurant services, attracting a concessional 5% GST rate, or as bakery goods, which might incur a different tax treatment.
The Argument Today:Â Service or Goods?
Representing the petitioner, Himesh Foods (Mad Over Donuts), an advocate argued that the supply of food products like donuts and cakes constitute a composite supply of services, as defined under the CGST Act. According to the petitioner, 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%.
The petitioner referred a recent interim order of the Bombay High Court, which sided with the petitioner’s argument and expressed a prima facie view that such supplies could indeed be considered services under GST law.
The issue raised during the proceedings was the issuance of multiple show-cause notices by different state authorities, despite a consolidated notice having already issued by the Directorate General of GST Intelligence (DGGI) in Mumbai. The petitioner contended that this amounted to duplicity and harassment, particularly since the central authority had already assumed jurisdiction over the matter.
In response, the Karnataka High Court took note of a prior undertaking by the respondents before the Bombay High Court, assuring that no coercive action would be taken while the classification issue was under consideration. 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.
What next?
The outcome of the case is being watched by stakeholders in the food service industry, particularly cloud kitchens, quick-service restaurants, bakeries and dessert chains that have faced similar GST classification disputes. The Karnataka HC’s decision could provide much-needed clarity on how GST should be applied to businesses operating across multiple states, potentially influencing tax compliance across the industry.
With the next hearing scheduled for June 6, 2025, the case promises to shape the future of GST taxation for food businesses and could lead to greater uniformity in the application of tax laws for the sector.
The ruling is expected to have implications for GST compliance, as the court’s final decision could set a precedent for similar disputes in future.
