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The Bombay High Court is set to hear a significant tax dispute involving Mad Over Donuts (MOD) on March 24, a case that could shape the classification of restaurant and bakery services under the Goods and Services Tax (GST) framework.

The core issue revolves around whether donuts should be classified as a composite supply of services or a separate taxable product. The decision in this case could have wide-ranging consequences for the food and beverage industry and its taxation policies.

Tax Dispute and Show-Cause Notice

The Directorate General of GST Intelligence (DGGI) issued a consolidated show-cause notice (SCN) covering multiple financial years from 2017-18 to 2023-24, demanding approximately Rs 100 crore in taxes.

  • MOD’s Classification: The company categorized its donut sales as a composite supply of services under GST.
  • Tax Authorities' View: The government argued that donuts are a supply of goods, attracting a different GST rate, leading to the dispute over tax liability.

Legal Arguments Presented

Representing Mad Over Donuts (Himesh Foods), constitutional and tax expert Abhishek A Rastogi cited provisions under the Central Goods and Services Tax (CGST) Act to argue that:

  • Food supplied in restaurants or takeaway items qualify as services.
  • Entry No. 6(a) of Schedule II of the CGST Act states that composite supplies, such as restaurant services, should be treated as services.
  • Government-issued circulars confirm that takeaways are taxed as services at 5%.

Rastogi emphasized that treating bakery products like donuts as goods instead of services adds complexity to tax compliance. A uniform classification under the composite supply framework would provide much-needed clarity for the restaurant and bakery industry.

Concerns Over the Show-Cause Notice

A major procedural issue raised in court was whether the DGGI can issue a single SCN covering multiple years and GST registrations.

  • Industry experts argue that separate notices should be issued for different assessment periods to ensure clarity and compliance.
  • Rastogi stressed that a streamlined process would reduce litigation and make tax compliance easier for businesses.

Next Steps in the Legal Proceedings

The Bombay High Court recorded the assurance from tax authorities that no coercive action would be taken against MOD until the case is resolved.

  • The respondents have been directed to file their response by March 17.
  • The next hearing is scheduled for March 24.
  • If any recovery actions are initiated by the authorities before the final verdict, the petitioner can approach the bench for relief.

Impact on the Food and Beverage Industry

The court’s ruling in this case could set an important legal precedent for businesses in the restaurant and bakery sector.

If the decision favors MOD, it could:

  • Provide clarity on tax classification for composite supplies in the food and beverage sector.
  • Influence how restaurant chains, bakeries, and food delivery services are taxed under GST.
  • Help businesses optimize tax compliance strategies and streamline operations.

Conversely, a ruling in favor of the tax authorities could mean higher tax rates for many food businesses, impacting pricing and business models.


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GST dispute Mad Over Donuts Bombay High Court composite supply food and beverage industry tax classification restaurant services GST framework