Will Donuts Get 5% Or 18% GST? Bombay HC to decide Whether Donuts Come Under Restaurant Or Bakery Items:

Will Donuts Get 5% Or 18% GST? Bombay HC to decide Whether Donuts Come Under Restaurant Or Bakery Items The Bombay High Court heard a case on Monday that might have far-reaching consequences for India's food and beverage sector. The court debated whether donuts should be taxed as part of restaurant services at 5% or as freestanding bakery products at 18%. The lawsuit, involving the Indian arm of the donut brand Mad Over Donuts, was prompted by a notice from the Directorate General of Goods and Services Tax Intelligence (DGCI). The notice accused the company of tax fraud for erroneously defining its business as a food service and requested dues of more than Rs.1 billion, a move that has also affected chains such as Dunkin' Donuts, Theobroma, and Krispy Kreme. The dispute revolves around the process of preparing and selling donuts. According to the DGCI inquiry, Mad Over Donuts' head chef allegedly indicated that donuts are produced in a central kitchen before being transported to individual locations. At these locations, "garnishing, chocolate pouring, and packing" are done before the products are offered "over the counter". Mad Over Donuts claims that its locations qualify as restaurants since each has a kitchen where goods are heated and finalised before sale. Mad Over Donuts, represented by parent business Himesh Foods Pvt Ltd, claims that existing GST notifications place food sold at restaurants, eateries, messes, and canteens in the 5% tax band regardless of whether it is consumed on-site or taken away. However, the DGCI claims that the cooks at these establishments are "stretching the definition of service beyond" the criteria outlined in the GST Act. The agency also contended that any garnishing of donuts prior to sale is "nothing but to make the said products attractive for the customers before selling them over the counter, similar to the types of sweets prepared by confectioners with various coatings and spreading different dry fruits over it." Advocate Abhishek Rastogi, who represents Mad Over Donuts, warned of potential industry-wide ramifications. He remarked, "If for some reason, this order is not dealt pragmatically then there are high chances of disruption for the food and beverages sector." In response to the petition, the court decided that no coercive action against Mad Over Donuts can be done while the case is pending, with a follow-up hearing scheduled for March 24, 2025. This legal battle is not taking place in isolation. In recent years, India has seen various tax classification conflicts, which have had far-reaching consequences for the food industry. For example, in September 2022, authorities suggested that frozen Malabar parottas should be charged more than frozen rotis, based on heating time and readiness for consumption. Similarly, last year, Finance Minister Nirmala Sitharaman announced that caramel popcorn will be taxed higher than plain salted popcorn, citing the fact that "anything with added sugar attracts a different tax rate." The controversy recalls a well-known court dispute from the United Kingdom over three decades ago regarding McVitie's Jaffa Cakes. The UK courts questioned whether Jaffa Cakes should be categorised as biscuits, which are subject to 20% VAT, or as cakes, which are zero-rated for VAT. McVitie's stated that when Jaffa Cakes become stale, they stiffen and resemble cakes rather than soft and soggy biscuits. This issue, therefore, is more than a regular tax dispute; it is a litmus test for how food items are classed under GST—a result that may set a precedent for India's restaurant and bakery industries. As stakeholders await the court's final decision, industry experts and business executives remain vigilant about the ruling's broader ramifications for product price, supply chain dynamics, and consumer choice.