The GST rate applicable to donuts and cakes is currently a subject of legal debate, with the Bombay High Court playing a crucial role in determining the correct classification. 

The case comes after a plea by Himesh Foods Pvt Ltd, the parent company of Mad Over Donuts, challenging a show-cause notice issued by the Directorate General of GST Intelligence

Here’s a breakdown of the situation:   

  • The Core Issue:
    • The central question is whether these items should be classified as “restaurant services” (attracting a 5% GST rate) or as “bakery products” (subject to an 18% GST rate).   
  • The Legal Challenge:
    • Mad Over Donuts (MOD) has challenged a show-cause notice from the Directorate General of Goods and Services Tax Intelligence (DGGI), which demanded approximately ₹100 crore in tax dues.
    • The DGGI argues that MOD should have applied the 18% GST rate, while MOD contends that its sales fall under the 5% rate for restaurant services.   
  • Bombay High Court’s Role:
    • The Bombay High Court is now tasked with deciding the appropriate GST classification.   
    • The court has currently restrained authorities from taking any coercive recovery actions against the company.   
    • The outcome of this case will have significant implications for the food and beverage industry, potentially setting a precedent for similar situations.
  • Key points of the legal arguments:
    • MOD argues that because they perform some final preparation of the items at their retail locations, that this qualifies those locations as restaurants, and therefore the 5% rate should be applied.
    • The DGGI is arguing that the items are produced as bakery goods, and therefore the 18% rate should be applied.

The High Court has set March 24 as the date for the next hearing and has directed the tax authorities to file their replies by March 17.  

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