In a significant interim relief for India’s food and beverage industry, the Bombay High Court has stayed a GST demand imposing 18 per cent tax on item-wise food sales made by Mad Over Donuts, operated by Himesh Foods Pvt. Ltd. The ruling offers temporary protection against recovery proceedings and brings renewed focus on long-running disputes over GST classification of restaurant services.
The order is being closely watched by restaurant chains, cafes, bakeries, and cloud kitchens across the country, many of which face similar tax demands under the GST regime.
Background of the GST Dispute
Himesh Foods Pvt. Ltd. approached the Bombay High Court challenging a show cause notice issued under Section 74 of the CGST Act, followed by an adjudication order. The tax authorities had contended that donuts sold by the company should be taxed at 18 per cent GST by treating them as separately taxable goods, rather than as part of restaurant services.
The company argued that its supplies squarely fall under restaurant services, which attract a lower concessional GST rate, and that breaking down transactions into individual food items contradicts the GST framework.
High Court Grants Interim Stay
A Division Bench comprising Justice G.S. Kulkarni and Justice Aarti Sathe stayed the impugned adjudication order and directed that the matter be listed for final hearing on February 26, 2026. The interim stay effectively restrains the tax department from enforcing the higher GST demand until the case is finally decided.
At this stage, the Court appeared convinced that the matter involves substantial questions of law, justifying judicial intervention and interim protection.
GST Council’s Intent and Composite Supply Argument
Appearing for the petitioner, senior advocate Rastogi argued that the GST framework clearly reflects the GST Council’s intent to rationalise taxation in the food sector, with the objective of ensuring affordability and passing benefits to consumers.
He submitted that:
- Statutory provisions of GST law
- Rate notifications issued from time to time
- Official clarifications by tax authorities
all consistently recognise restaurant supplies as a composite supply of services, rather than a bundle of individual goods.
Once this position is clear, any attempt by tax authorities to dissect restaurant transactions and impose item-wise GST rates becomes legally unsustainable, he argued. Such an approach, according to the petitioner, amounts to manifest arbitrariness and runs contrary to the policy consciously adopted by the GST Council.
Risks of Item-Wise Classification
The petitioner further warned that allowing item-wise classification of food sold by restaurants could severely undermine certainty and uniformity under GST. For the organised and semi-organised food services sector, this would mean:
- Increased litigation
- Inconsistent tax treatment across states
- Higher compliance burdens
- Unpredictable pricing structures
Such uncertainty, he argued, defeats the core purpose of GST as a unified indirect tax system.
Scope of Judicial Review Under Article 226
Rastogi also relied on Article 226 of the Constitution of India, which empowers High Courts to intervene where executive action is arbitrary, unreasonable, or contrary to legislative intent.
He contended that the present case warranted such intervention because the higher tax demand was being imposed through administrative interpretation, rather than through any clear legislative or policy mandate under GST law.
Industry-Wide Implications for Restaurants and Cafes
Tax experts believe the Mad Over Donuts case could have far-reaching implications for the food services industry. Several businesses, including cafés, bakeries, dessert chains, and cloud kitchens, are currently facing GST demands based on itemised classification of food products. A final ruling by the Bombay High Court could:
- Reaffirm the principle of composite supply for restaurant services
- Bring much-needed tax certainty
- Align tax administration with the GST Council’s stated policy intent
- Reduce litigation across the sector
For now, the interim relief provides immediate respite to Himesh Foods and signals judicial recognition of the broader concerns plaguing the industry.
Awaiting Final Verdict
While the final outcome will be decided in Feb. 2026, the High Court’s interim order has already injected optimism into the food and beverage sector. The final judgment is expected to play a decisive role in settling one of the most contentious GST classification issues under the current tax regime.
Source: CNBC-TV18