Bombay HC addresses key tax classification dispute on restaurant services and bakery products

The Bombay High Court on Tuesday (March 4) deliberated on a significant tax classification dispute concerning restaurant services and the supply of donuts and cakes.

The case, heard by a bench comprising Justice BP Colabawalla and Justice FP Pooniwalla, focused on whether the supply of donuts falls within the ambit of restaurant services under Service Accounting Code (SAC) 9963 or should be categorised as a bakery product subject to separate tax treatment under the Goods and Services Tax (GST) framework.

Representing the petitioner, Mad Over Donuts (Himesh Foods), constitutional and tax expert Abhishek A Rastogi argued that under the Central Goods and Services Tax (CGST) Act, the supply of food or other edible articles qualifies as a composite supply of services.

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He contended that the relevant GST rate notifications explicitly define restaurant services to include food supplied at restaurants, eating joints, messes, and canteens, whether for consumption on the premises or as takeaway. Rastogi further highlighted that a government-issued Circular supports this interpretation by confirming that takeaway services should be classified as services and taxed at 5%.

Another crucial aspect before the court was the issue of multiplicity of proceedings across different territorial jurisdictions. The bench examined whether a centralized show-cause notice (SCN) issued by the Directorate General of GST Intelligence (DGGI) suffices or whether separate notices need to be issued for each GST registration.

Rastogi also submitted that clarity is required on whether tax authorities can consolidate multiple years in a single SCN or if they are obligated to issue separate notices for each assessment period.

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During the proceedings, the Court recorded the respondents’ statement that no coercive action will be initiated by the tax authorities regarding the disputed classification issue. The court further granted the petitioner the liberty to approach the bench should any recovery actions be taken by the department.

The respondents have been directed to file their response by March 17, and the matter has been scheduled for further hearing on March 24. This case is expected to have far-reaching implications, impacting not only restaurant chains and bakery businesses but also various industries relying on the classification of food services under GST.

Legal experts and industry stakeholders are closely monitoring the proceedings, as the outcome could influence tax compliance strategies and operational models across the country.

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