The Bombay High Court (Aurangabad Bench) has stayed a GST show cause notice issued against a hospitality company, while agreeing to examine larger legal questions surrounding the maintainability of writ petitions at the pre-adjudication stage and the validity of differential GST rates for restaurant services in high-tariff hotels.
The bench of Justices Nitin B. Suryawanshi and Vaishali Patil-Jadhav declined the Union government’s plea to vacate the earlier ad-interim relief granted in October 2025. Instead, the Court directed that the operation of the show cause notice be stayed until further orders.
The assessee challenged a show cause notice dated September 29, 2025, issued under Section 74 of the Central Goods and Services Tax Act, 2017. The notice proposes recovery of over ₹4.04 crore towards alleged tax dues, along with interest and penalties, for the period from FY 2019–20 to 2024–25.
The petitioner had earlier been granted protection from coercive action subject to furnishing a bank guarantee of ₹40 lakh, a condition that has already been complied with. The Court noted this compliance and found it appropriate to maintain the status quo at this stage.
The case raises two key legal questions. First, whether a writ petition challenging a show cause notice is maintainable at a pre-adjudication stage, especially when statutory remedies under the GST framework are available. The Union government argued that the petitioner should participate in adjudication proceedings rather than bypass the statutory mechanism.
Second, and more significantly, the writ petition challenges the GST rate structure applicable to restaurant services located within high-end hotels. Under the current framework, restaurants operating within hotels charging room tariffs above ₹7,500 per night are taxed at 18%, whereas standalone restaurants are taxed at a concessional rate of 5%.
Advocate Abhishek Rastogi, the counsel on behalf of the assessee has argued that this classification is arbitrary and lacks a rational nexus to the nature of the service provided. It contends that linking the tax rate for restaurant services to hotel room tariffs is an artificial distinction that leads to discriminatory and excessive tax burdens.
The department urged the Court to vacate or modify the interim relief, highlighting that the statutory deadline for completing adjudication proceedings expires on March 31, 2026. It argued that continuation of the stay would prevent authorities from passing an adjudication order within the limitation period, thereby affecting revenue collection and rendering the proceedings infructuous.
However, the petitioner countered that once the Court grants a stay on the show cause notice, the limitation period effectively stands suspended. It also pointed out that the Revenue had not yet filed its reply in the writ proceedings.
The Court directed the respondents to file their reply by May 8, 2026, and allowed the petitioner to file a rejoinder by June 10, 2026. The matter has been listed for further hearing on June 11, 2026.
