Bombay High Court halts GST action on 18% hotel restaurant levy
The Aurangabad Bench of the Bombay High Court has granted interim relief to a hospitality company challenging the 18% goods and services tax (GST) rate applied to restaurants operating within high-tariff hotels.
In an order dated March 24, the court refused to withdraw the interim protection earlier granted and instead stayed the operation of a show-cause notice issued under Section 74 of the Central GST Act.
The division bench directed tax authorities to submit their response and scheduled the next hearing for June, Business Standard reported.
The case stems from a tax demand exceeding Rs.4 crore for the period between 2019–20 and 2024–25. Authorities had sought to proceed with adjudication before the statutory deadline of March 31, arguing that continued relief would hinder revenue collection.
The court noted that the petitioner had already complied with prior directions by furnishing a Rs.40 lakh bank guarantee and decided to maintain the status quo until further orders.
At the centre of the dispute is the GST rate structure that imposes an 18% tax on restaurant services located within hotels charging room tariffs above Rs.7,500 per night, compared to a lower 5% for standalone restaurants.
Meanwhile, the petitioner has challenged this framework.
Representing the petitioner, advocate Abhishek A Rastogi contended that the current system unfairly linked restaurant taxation to hotel room tariffs, an unrelated factor, rather than the nature of the service provided.
He argued that such classification lacks a rational basis and results in unintended tax burdens.
The petitioner highlighted that since hotel restaurants serve many walk-in diners, linking their tax rate to room pricing is both legally and commercially flawed. It suggests that GST should be based on the actual restaurant service provided, rather than the separate room rates of the hotel.
The hospitality industry is watching this case closely, as algorithm-driven pricing on travel platforms causes room rates to fluctuate constantly, he added.
“The HC’s decision to continue interim protection signals judicial willingness to examine the validity of the rate notification itself, rather than relegating taxpayers solely to statutory remedies,” Rastogi was quoted as saying by Business Standard.
With further hearings scheduled for June, the case could potentially set an important precedent on tax classification and rate rationalisation under the GST regime.
