Popular Donut and Bakery Chains: The Goods and Services Tax (GST) authorities have issued show cause notices to at least six well-known donut and bakery chains in India, including Dunkin’ Donuts, Theobroma, Mad Over Donuts, and Krispy Kreme. These companies are under scrutiny for classifying their businesses as ‘restaurant services’ and availing a lower GST rate of 5%. The authorities are now demanding an 18% GST on their bakery and donut sales, which could lead to substantial tax liabilities amounting to Rs 50-60 crore per company. This article delves into the ongoing legal battle, its implications, and what it means for the food industry.
Table of Contents
Why Have Donut Chains Received Show Cause Notices?
GST Classification Dispute-Popular Donut and Bakery Chains
The core issue revolves around the classification of these bakery businesses under GST laws. While restaurant services are taxed at a lower rate of 5%, bakery products, including cakes and pastries, attract an 18% GST rate. The GST authorities argue that these donut chains primarily sell bakery products and should, therefore, be taxed at 18% rather than benefiting from the restaurant services rate.
Timeframe and Tax Demand
The notices pertain to the financial years from 2016-17 to 2022-23, with tax demands reaching Rs 50-60 crore per company. If the tax authorities’ stance is upheld, it could lead to significant financial implications for these businesses.
Legal Battle and Industry Response
Mad Over Donuts Challenges GST Notice in Court
In response to the notices, Mad Over Donuts has moved the Bombay High Court, challenging the GST demand. The case is expected to be heard in court next week. Legal experts believe the ruling could set a precedent for similar disputes in the food and beverage industry.
Experts’ Take on the GST Classification
Tax experts argue that restaurant services should include all food supply activities, whether consumed on-site or taken away. According to Abhishek A Rastogi, Founder of Rastogi Chambers and legal representative for the taxpayers, the GST Act explicitly classifies the supply of food and associated services as a supply of service under Schedule II of the Central Goods and Services Tax (CGST) Act. Thus, businesses providing food services should continue to be taxed at 5%.
Impact on the Food and Beverage Industry
Potential Financial Burden
If the GST authorities’ argument is upheld, donut and bakery chains could face massive tax liabilities. This could impact pricing strategies, operational costs, and consumer affordability. Companies may have to pass on the additional tax burden to customers, leading to higher prices for bakery products.
Future Taxation Challenges for Restaurants and Bakeries
This case highlights the ongoing ambiguity in GST classifications for businesses that operate in hybrid models, selling both dine-in and takeaway items. The outcome could prompt other food businesses to reevaluate their tax compliance strategies.
Read More: Share Market News – ARC Finance Ltd Share Price Target 2030
Conclusion
The GST notices issued to leading donut and bakery chains have sparked a major taxation debate in India’s food industry. With legal proceedings underway, the final verdict will have far-reaching implications on how bakery businesses are taxed. Whether the GST authorities’ demand for 18% taxation holds or the businesses continue to avail the 5% rate under restaurant services remains to be seen. Stay tuned for further updates as the case unfolds.
1. Why have donut and bakery chains received GST notices?
Donut and bakery chains like Dunkin’ Donuts and Krispy Kreme are under scrutiny for classifying their businesses as ‘restaurant services’ and paying a lower GST rate of 5% instead of 18%. GST authorities argue they should be taxed at the higher rate.
2. How much tax is being demanded from these companies?
The GST authorities have issued tax demands amounting to Rs 50-60 crore per company for the period between 2016-17 and 2022-23.
3. What is the current GST rate for bakery products and restaurant services?
Bakery products such as cakes and pastries attract an 18% GST, whereas restaurant services are taxed at 5% unless Input Tax Credit (ITC) is claimed.
4. How has Mad Over Donuts responded to the GST notice?
Mad Over Donuts has challenged the GST demand in the Bombay High Court. The case is expected to be heard soon and could set a precedent for other businesses facing similar issues.
5. What impact will this dispute have on the food and beverage industry?
If the higher GST rate is upheld, donut and bakery chains may face significant financial burdens, potentially leading to increased prices for consumers and changes in tax compliance strategies within the industry.