The Bombay High Court has granted interim relief to Himesh Foods Pvt. Ltd., the operator of the Mad Over Donuts chain, staying a GST demand that sought to levy tax at a higher rate by treating individual food items as separately taxable supplies. The order is being closely tracked by India’s food and beverage industry, where restaurants and cafés continue to face disputes over GST classification and rates.
Himesh Foods had approached the High Court challenging a show cause notice issued under Section 74 of the CGST Act, followed by an adjudication order raising GST demands on the ground that donuts sold by the company were liable to 18% GST based on item-wise classification. The company has contended that its supplies qualify as restaurant services, which attract a concessional GST rate.
A Division Bench comprising Justice G.S. Kulkarni and Justice Aarti Sathe stayed the impugned adjudication order and directed that the matter be listed for final hearing on February 26, 2026.
GST Council intent and composite supply argument
Appearing for the petitioner, the advocate argued that the GST framework clearly reflects the GST Council’s intent to rationalise tax rates in the food sector, with the objective of ensuring that benefits are ultimately passed on to consumers.
According to him, this intent is evident from the statutory provisions of the GST law, the rate notifications issued from time to time, and clarifications released by tax authorities. These, he submitted, recognise that supplies made by restaurants or food outlets are to be treated as a composite supply of services, rather than as individual supplies of goods.
He argued that once the law and notifications leave no ambiguity on this position, any attempt by tax authorities to dissect restaurant transactions and classify the sale of donuts as itemised goods is legally untenable. Such an approach, Rastogi submitted, amounts to manifest arbitrariness, as it contradicts the taxation framework consciously designed by the GST Council and implemented through binding notifications.
He further cautioned that allowing item-wise classification in restaurant operations would undermine certainty and uniformity under GST, particularly for the organised and semi-organised food services sector.
Scope of judicial review
Rastogi also submitted that Article 226 of the Constitution of India empowers High Courts to intervene where executive action is arbitrary, unreasonable, or contrary to legislative intent. He argued that the present case warranted such intervention, as the tax demand sought to impose a higher rate through administrative interpretation rather than legislative mandate.
At the interim stage, the Court appeared persuaded that the matter involved substantial questions of law, warranting protection from recovery proceedings until final adjudication.
Industry-wide implications
Tax experts say the Mad Over Donuts case has wider implications for the restaurant and café segment, where several businesses — including bakeries and cloud kitchens — are facing similar GST demands based on item-wise classification of food products.
A final ruling by the Bombay High Court, experts note, could help resolve long-standing disputes and bring greater tax certainty by reaffirming the principle of composite supply for restaurant services, while aligning tax administration with the GST Council’s policy intent.
For now, the interim relief provides immediate relief to the petitioner and signals judicial recognition of broader concerns affecting the food services sector. The final verdict is expected to play a key role in settling one of the most contentious GST classification issues facing the industry.
