Legal Battle Over 18% GST for Premium Hotel Restaurants to Continue After Bombay High Court Stay
Legal Battle Over 18% GST for Premium Hotel Restaurants to Continue After Bombay High Court Stay
Bombay High Court’s Interim Stay on GST Rate for Hotel-Based Restaurants Sparks Industry Reactions
In a significant move, the Bombay High Court has granted an interim stay on the 18% Goods and Services Tax applied to restaurants operating within premium hotels, pending further hearings on November 19. This ruling comes as a relief to several hotel-based restaurants that were facing an unjust tax burden based solely on their location within high-end hotels, despite offering services to both hotel guests and walk-in customers.
Background of the Case
The petition challenging the application of 18% GST on restaurant services inside hotels was heard by the Aurangabad Bench of the Bombay High Court. The case centres around the distinction in GST rates between restaurant services inside hotels that charge more than Rs. 7,500 per room per night and standalone restaurants. While hotel-based restaurants were taxed at a higher rate of 18%, standalone restaurants, regardless of their size or scale, were taxed at just 5%, and without the benefit of Input Tax Credit.
This sharp contrast led the petitioners to argue that the GST regime was discriminatory and commercially unjustified, as the only differentiating factor was the location of the restaurant within the hotel premises. Abhishek A Rastogi, the counsel for the petitioners, argued that the tax structure was both arbitrary and irrational. The matter has been adjourned for further hearing on November 19, and the interim stay will remain in place until further orders.
Key Arguments from the Petitioners
The primary argument made by the petitioners was that restaurants inside hotels should not be taxed differently from standalone restaurants, especially when many of these hotel-based restaurants serve non-hotel guests as well. They pointed out that the 18% GST on these restaurants is not reflective of the services offered but instead penalizes establishments based on their location within a hotel classified as a “specified premise.”
Furthermore, the petitioners’ counsel raised concerns that mid-range hotels, which may have a seasonal price fluctuation, could inadvertently fall into the higher tax bracket during periods of increased room tariffs, such as holidays or festivals. This would lead to a disproportionate tax burden on restaurants serving both in-house and walk-in customers. The petitioners stressed that the GST Council never intended such an outcome and that the tax structure should be based on the nature of the service rendered rather than the location.
The Court’s Observations and the Stay
The Bombay High Court, after hearing the arguments, granted an interim stay on the 18% GST until further notice. The court observed that notices had been issued to various authorities, including the Union of India, the State of Maharashtra, and the GST Council, seeking their responses to the petition. The court's decision to grant an interim stay means that the tax structure will not be enforced in the interim, offering some respite to hotel-based restaurants that have been adversely affected by the higher GST rate. Justice R. G. Avachat and Justice Abasaheb D. Shinde, who presided over the case, have set the next hearing for November 19, where further arguments will be presented and the case will be reviewed in greater detail.
Impact on the Hospitality Industry
This interim stay has significant implications for the hospitality industry, particularly for high-end hotels and restaurants operating within them. The 18% GST rate had been viewed by many as disproportionately high, especially given that hotels serve not only guests staying overnight but also a significant number of walk-in customers.
The case highlights the complex and sometimes inconsistent nature of India’s GST framework, particularly in sectors such as hospitality, where the nature of services can vary widely. If the Bombay High Court rules in favour of the petitioners, it could result in a major shift in how restaurant services in hotels are taxed, potentially leading to a more equitable tax structure across the hospitality industry.
The Way Forward
The final judgment on this matter is still pending, and the outcome could have far-reaching effects on how restaurant services are taxed in the future. For now, the interim stay provides a temporary reprieve, but the hospitality sector will be watching closely as the case progresses. If the Bombay High Court rules in favour of the petitioners, it may set a precedent for reconsidering the GST rates on various services within the hotel industry, creating a more level playing field for all players in the sector.
The Bombay High Court’s decision to grant an interim stay on the 18% GST levied on restaurants within premium hotels is a landmark moment for the hospitality industry. The case raises important questions about the fairness and equity of tax rates based on the location of a restaurant within a hotel, and whether the current tax structure accurately reflects the nature of the service being provided. As the case continues, the industry will await the court’s final decision, which could usher in significant changes to how restaurant services are taxed in India.
