Dunkin' Donuts, Theobroma, other bakery chains get GST notices over 18% tax demand: Report

Donuts

At least six popular donut and bakery chains have received show cause notices from GST authorities for classifying their businesses as 'restaurant services', to be taxed at a lower GST rate of 5 percent, NDTV Profit reported citing people familiar with the matter.

Demanding 18 percent GST on the sale of donuts and bakery items, the GST authorities have sent the show cause notices to Dunkin' Donuts, Theobroma, Mad Over Donuts and Krispy Kreme, among others. The notices pertain to the period between the fiscal 2016-17 and fiscal 2022-2023. The tax demands mentioned in these notices amount to Rs 50-60 crore for each company, the report said.

Moneycontrol couldn't independently verify the report.

Mad Over Donuts has moved the Bombay High Court, challenging the GST demand notice. The case will likely be heard by the court next week.

Notably, cakes, pastries and other bakery items are charged 18 percent GST, subject to conditions. Meanwhile, restaurant services are charged 5 percent GST unless Input Tax Credit (ITC) is availed on certain goods and services.

GST authorities have argued that these donut chains cannot be termed as 'restaurant services' and must bear the higher rate of 18 percent.

Rastogi Chambers Founder Abhishek A Rastogi, who is representing the taxpayers, however noted that restaurant services include establishments such as eating joints, messes and canteens, irrespective of whether the food in consumed on the premises or is taken away.

"The supply of food, articles, and any associated service, in any manner whatsoever, has been explicitly classified as a supply of service under Schedule II of the Central Goods and Services Tax (CGST) Act. Consequently, the applicable tax rate of 5 percent for services is also extended to restaurant services," Rastogi was quoted as saying by the report.

Finance Minister Nirmala Sitharaman earlier had distinguished between salted and caramelized popcorn to suggest that the latter falls under a higher tax rate. "Salted, caramelised popcorn is being sold as namkeen (salty, unbranded savouries) in certain states. Caramelised popcorn comes with added sugar, so the treatment of the rate is different from namkeen. Whether it is carbonated a drink or juice, anything with added sugar attracts a different tax rate. Since caramelised popcorn contains added sugar, the tax rate is different," she had said after the GST Council meeting on December 21.

Sitharaman was referring to food products that are classified as sugar confectionery, which attract a levy of 18 percent, barring a few exceptions. Namkeens such as bhujia, mixture and similar edible preparations in ready-for-consumption form sold loose or in unpackaged form are taxed at 5 percent, while in pre-packed and labelled form they fall under the 12 percent bracket.