The Bombay High Court has provided crucial interim relief to Himesh Foods Pvt. Ltd., the company behind 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. This development is being closely monitored across India's food and beverage industry, where classification disputes continue to create uncertainty for restaurant operators.

Court Proceedings and Relief Granted

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. The tax authorities had argued that donuts sold by the company were liable to 18% GST based on individual item classification, while the company contended that its supplies qualify as restaurant services attracting concessional 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 approach. Rastogi argued that the GST framework clearly reflects the GST Council's intent to rationalize tax rates in the food sector, ensuring benefits are passed on to consumers.

The legal counsel emphasized that statutory provisions, rate notifications, and official clarifications consistently recognize restaurant supplies as composite services rather than individual goods. Key arguments included:

• GST law and notifications leave no ambiguity regarding restaurant transaction treatment
• Item-wise classification contradicts the taxation framework designed by GST Council
• Administrative interpretation cannot override legislative mandate
• Such approach amounts to manifest arbitrariness

Constitutional and Judicial Review Aspects

Rastogi invoked Article 226 of the Constitution, arguing that High Courts possess authority to intervene when executive action appears arbitrary or contrary to legislative intent. He cautioned that allowing item-wise classification would undermine certainty and uniformity under GST, particularly affecting organized and semi-organized food services sectors.

The Court appeared persuaded that substantial questions of law were involved, warranting protection from recovery proceedings until final adjudication.

Industry-Wide Implications

Tax experts highlight that this case carries significant implications beyond Mad Over Donuts, affecting the broader restaurant and café segment. Several businesses face similar challenges:

• Bakeries dealing with item-wise classification demands
• Cloud kitchens facing GST rate disputes
• Restaurant chains seeking clarity on composite supply treatment
• Food outlets navigating classification uncertainties

A final ruling by the Bombay High Court could help resolve long-standing disputes and establish greater tax certainty by reaffirming composite supply principles for restaurant services. The decision is expected to align tax administration with GST Council policy intent, providing much-needed clarity to the food services industry.

The interim relief provides immediate protection to the petitioner while signaling judicial recognition of broader concerns affecting the food services sector. Industry stakeholders await the final verdict, which could play a decisive role in settling one of the most contentious GST classification issues facing the restaurant industry.