The Bombay High Court is set to determine the appropriate Goods and Services Tax (GST) rate applicable to donuts and cakes, specifically whether they should be taxed at 5% under restaurant services or at 18% as bakery products. 

The case is being heard by a bench comprising Justice BP Colabawalla and Justice FP Pooniwalla on whether the supply of donuts falls within the ambit of restaurant services under Service Accounting Code (SAC) 9963 or should be categorised as a bakery product subject to separate tax treatment under the Goods and Services Tax (GST) framework.

This legal scrutiny follows a show-cause notice issued by the Directorate General of Goods and Services Tax Intelligence (DGGI) to Mad Over Donuts (MOD), demanding approximately ₹100 crore in tax dues. The notice asserts that MOD should have applied an 18% GST rate on the sale of donuts and other bakery items, as opposed to the 5% rate associated with restaurant services. 

In response, MOD has filed a petition challenging the notice, leading the Bombay High Court to intervene. The court has currently restrained authorities from taking any coercive recovery actions against the company.

The core issue lies in the classification of donuts and similar bakery products under the GST framework. If categorized under restaurant services, these items attract a 5% GST rate. Conversely, if deemed bakery products, they are subject to an 18% GST rate. The court’s decision will have significant implications for the taxation of such products, potentially affecting pricing and compliance strategies within the food and beverage industry.

This case underscores the complexities businesses face in navigating GST classifications and the broader impact of such disputes on the industry. The outcome of this legal battle is anticipated to set a precedent for similar cases in the future.

Hitesh Foods (Mad Over Donuts) was represented by Advocate Abhishek A Rastogi.

After Caramel Popcorn GST Controversy, Donuts Come Under Scanner

Following the recent caramel popcorn GST classification debate, where authorities contested its tax rate, a similar controversy is brewing over donuts. Tax officials argue that donuts, including specialty variants like caramel popcorn donuts, should be classified as bakery items subject to 18% GST. Meanwhile, MOD maintains that its products should be taxed at the lower 5% rate applicable to restaurant services.

With the Bombay High Court stepping in, the food industry awaits a crucial verdict that could reshape GST norms for bakery and confectionery products.

Read More: Detailed Analysis of the Income Tax Act: Key Sections for Taxpayers and Businesses