Summary:
- Bombay HC grants interim stay on 18 percent GST for hotel restaurants.
- Hospitality sector flags concerns over GST classifications and business impact.
- Case to be heard on Nov. 19.
THE BOMBAY HIGH Court recently granted an interim stay in a case challenging the 18 percent goods and services tax on restaurants in hotels. The case follows a petition at the Aurangabad bench challenging the GST notification that links restaurant tax to hotel room tariffs.
Notices have been issued to the Centre, Maharashtra government, GST Council and other state authorities, Economic Times reported. The case will be heard on Nov. 19.
Under guidelines effective April 1, restaurants in “specified premises”—hotels charging over $84.50 per room per night or declaring as such—are taxed at 18 percent with Input Tax Credit or ITC, while others remain at 5 percent without ITC.
Petitioners told the Aurangabad bench that the distinction is “arbitrary and unjustified,” noting that many hotel restaurants serve walk-in customers and seasonal tariff hikes can trigger the higher rate, according to the Times.
Appearing for the petitioner, advocate Abhishek Rastogi, founder of Rastogi Chambers, argued that the rule results in "absurd and disproportionate consequences."
"Even if the hotel's room tariff exceeds Rs 7,500 for just one day in a year, the restaurant services within the premises are taxed at 18 percent for the entire year. This outcome was never intended by the GST Council," he told the court, according to the Economic Times.
Rastogi further submitted that restaurant services should be taxed based on their nature rather than location.
"Restaurants, whether standalone or inside hotels, provide the same kind of service,” he argued. “Linking the tax rate to room tariffs makes no legal or economic sense, particularly when many patrons are walk-in customers.”
Meanwhile, the petition has drawn attention from the hospitality sector, which has raised concerns over GST classifications and their impact on business. Experts noted that dynamic pricing by online travel agents can push effective room rates above Rs 7,500 or $85, even if the hotel's direct tariff is lower, the Times said.
The Federation of Hotel and Restaurant Associations of India said the new GST framework for hotels with room tariffs below $84.75 would have an adverse impact.
