Karnataka High Court Stays 50 Crore GST Demand

The Karnataka High Court has paused a ₹50 crore GST demand against Himesh Foods Private Limited over its chain of the Mad Over Donuts. Justice S R Krishna Kumar issued the interim order on Friday, directing the authorities to not to take coercive action until the next hearing on June 06.

Dispute Over GST Rate on Bakery Items

The case majorly focuses on how GST should apply to donuts, cakes and similar bakery products. The question is whether these items come under restaurant services, taxed at 5%, or as solely bakery goods that are taxed at the rate of 18%.

Himesh Foods argued that its operations involve a composite supply of services under the Central Goods and Services Tax (CGST) Act. It further said that the food sold for dine-in or takeaway should both come under the GST law for restaurant serving items.

Bombay High Court Reference

Advocate Abhishek A Rastogi who was representing Himesh Foods, pointed to a similar case pending before the Bombay High Court. In that matter, the Directorate General of GST Intelligence (DGGI) had agreed upon not taking coercive steps until the classification issue was not decided clearly.

The Karnataka High Court agreed that it was necessary to go for similar treatment. Justice Krishna Kumar stated that judicial consistency must apply since the petitioner and issues were identical. He also directed the GST Authorities of Karnataka not to take any enforcement action until the court’s next order.

The honourable judge said, “In the light of the undertaking given by the respondents (tax authorities) in relation to the very same petitioner (‘Mad Over Donuts’) before the Bombay High Court, respondents are directed not to take any precipitative/coercive steps till the next date of hearing.”

Despite the DGGI in Mumbai issuing a consolidated notice stating the same tax issues across several states, Karnataka’s State GST authorities made a separate demand. Against such action, Himesh Foods challenged this separate action before the High Court.

A Partner at a tax firm AKM Global, Mr. Sandeep Sehgal, said that the development highlights the risks of duplicate proceedings. He also added, “The company pointed out that a consolidated notice already existed. Still, Karnataka authorities attempted to raise a fresh demand. Businesses must monitor overlapping actions and respond quickly.”

Next Hearing on June 06

The GST rate on food items depends on how the supply occurs. Restaurants attract 5% GST. However, the packaged goods or food that are sold outside a restaurant setting generally attract a GST rate of 18%.

Now, the court will decide whether ‘Mad Over Donuts’ outlets chain fulfills eligibility to qualify as restaurants under the CGST Act or not. Based on the decision, the similar bakery chains across India will be taxed.

As of now, Himesh Foods has granted relief as the ₹50 crore demand from the food company is kept on hold until the next hearing.

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