The Bombay High Court has delivered a significant interim ruling in favor of Himesh Foods Pvt. Ltd., the operator of the Mad Over Donuts chain, by staying a GST demand that sought to levy tax at a higher rate through item-wise classification of food products. The decision addresses one of the most contentious issues in GST implementation affecting India's food and beverage industry.

Court Proceedings and Legal Challenge

Himesh Foods approached the High Court to challenge a show cause notice issued under Section 74 of the CGST Act, followed by an adjudication order that raised GST demands on individual food items. The tax authorities had sought to impose 18% GST on donuts based on item-wise classification, while the company contended that its supplies qualify as restaurant services attracting concessional GST rates.

Legal Arguments and GST Framework

Appearing for the petitioner, Abhishek A. Rastogi, Founder of Rastogi Chambers and tax law expert, presented comprehensive arguments supporting the composite supply framework. Rastogi argued that the GST Council's intent clearly reflects rationalization of tax rates in the food sector, with benefits ultimately passed to consumers. He emphasized that statutory provisions, rate notifications, and official clarifications consistently recognize restaurant supplies as composite services rather than individual goods.

Rastogi cautioned that allowing item-wise classification would undermine certainty and uniformity under GST, particularly affecting the organized and semi-organized food services sector. He argued that dissecting restaurant transactions contradicts the taxation framework consciously designed by the GST Council and implemented through binding notifications.

Constitutional and Administrative Law Aspects

The legal team invoked Article 226 of the Constitution, arguing that High Courts possess authority to intervene where executive action appears arbitrary or contrary to legislative intent. Rastogi contended that the tax demand sought to impose higher rates through administrative interpretation rather than legislative mandate, warranting judicial intervention.

The Court recognized substantial questions of law at the interim stage, providing protection from recovery proceedings until final adjudication. This approach signals judicial acknowledgment of broader systemic concerns affecting the food services sector.

Industry-Wide Implications

Tax experts highlight that this case extends beyond Mad Over Donuts, affecting numerous businesses across the restaurant and café segment. Similar GST demands based on item-wise classification are impacting various food service providers:

• Traditional restaurants and cafés
• Bakeries and confectioneries
• Cloud kitchens and delivery-focused outlets
• Quick service restaurant chains

The final ruling could resolve long-standing disputes by reaffirming composite supply principles for restaurant services while aligning tax administration with GST Council policy objectives. Industry stakeholders are closely monitoring this case as it may establish precedent for GST classification in the food services sector, potentially bringing greater tax certainty and operational clarity to businesses nationwide.