Bombay HC grants interim stay on 18% GST for hotel-based restaurants

According to the guidelines, "restaurant services" within "specified premises" are to be taxed at 18 per cent, with Input Tax Credit, while others continue to be taxed at 5 per cent without ITC

The Bombay High Court has granted an interim stay in a case challenging the higher Goods and Services Tax (GST) rate of 18 per cent levied on restaurants operating within premium hotels, compared to 5 per cent for standalone restaurants, according to a report by The Economic Times.

 

The matter will be heard next on November 19. According to the report, the High Court has also issued notices to the Centre, the Maharashtra government, the GST Council, and other state authorities.

Industry-wide interest in case

According to the current guidelines, ‘restaurant services’ within ‘specified premises’ are to be taxed at 18 per cent, with Input Tax Credit (ITC), while others continue to be taxed at 5 per cent without ITC. The petitioner argued before the Aurangabad Bench that this distinction is “arbitrary, irrational, and commercially unjustified.”

What are specified premises?

Under the GST guidelines effective April 1, 2025, a hotel is considered a ‘specified premises’ if it charges more than ₹7,500 per room per night for even one room during the previous financial year. Such hotels will be treated as specified premises for the following year.

 

Hotels also have the option to voluntarily declare themselves as specified premises. Existing hotels can file the declaration between January 1 and March 31 of the preceding year, while new hotels can declare within 15 days of receiving GST registration. 

 

This move was aimed at replacing the earlier concept of ‘declared tariff’, which included charges for all amenities in a room, such as furniture, air-conditioning, or refrigerators, without accounting for any discounts offered on the initially published rate.

 

Under the current rules, the GST for restaurants operating inside hotels is to be calculated based on the value of supply (actual transactional value) rather than the published room rate.

‘Most restaurants serve walk-in customers’

The petitioner further noted that many such restaurants serve walk-in customers who are not hotel guests, making the higher tax rate unjust.

 

Many hotels, including mid-range ones, tend to raise their tariffs temporarily during festive seasons, long weekends, or holidays, which triggers the higher tax rate.

Eateries should be taxed based on service

Advocate Abhishek A Rastogi, who was appearing for the petitioners, told The Economic Times that the GST Council never intended this outcome and added that restaurants, whether standalone or inside hotels, should be charged based on the service they provide, not their location.