No recovery proceedings on donuts GST dispute, says Bombay High Court

The court also allowed the petitioner to seek a stay in case it receives any recovery notice from the revenue department

In a case that could decide whether donut and bakery chains should be categorised as restaurant services paying 5 per cent goods and services tax (GST) or bakery products sold by these outlets that should cough up 18 per cent GST, the Bombay High Court has said that no coercive action should be taken against the petitioner and the parent company of Mad Over Donuts — Himesh Foods Pvt Ltd.

 

The court on Monday also allowed the petitioner to seek a stay in case it receives any recovery notice from the revenue department.

 

"The petitioner is always free to approach the court seeking a stay, if any recovery notice is issued. We will at that time consider the prayer for interim relief," the court order stated. The court deferred the hearing on the writ petition to March 24, with the tax authorities directed to file their response by March 17, 2025.

 

The case centres around whether "donuts and cakes" sold by Mad Over Donuts should be taxed at 5 per cent under restaurant services or classified separately as bakery products under 18 per cent GST. "The government notifications and a circular confirm that takeaway food is included under restaurant services and should be taxed accordingly. The GST law does not differentiate between food consumed on the premises and food taken away," said Abhishek A Rastogi, who represented Mad Over Donuts before the court. According to him, the supply of food or other edible articles qualifies as a composite supply of services.

 

Apart from the classification issue, the court also examined whether the Directorate General of GST Intelligence (DGGI) can issue a single centralised show-cause notice (SCN) for multiple GST registrations across different states or if tax authorities must issue separate notice for each jurisdiction. Another key procedural issue raised was whether tax authorities can combine multiple years in a single SCN or if they must issue separate notices for each assessment period. Rastogi argued that a clear directive from the court is needed to avoid excessive compliance burdens and litigation risks for businesses operating in multiple locations.