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A court in India hears a case that decides whether Donuts should attract 5 or 18 percent tax, in a case that could have significant consequences for India’s restaurant and bakery industries.
The crux of the dispute is whether donuts should be taxed as part of restaurant services, which bears a five percent costs under India’s taxes on goods and services (GST), or as independent bakery products, which fall below the 18 percent GST bran.
This comes after the Indian arm of Donut Chain Mad over Donuts disputed a notice of India’s Directorate General of Tax Intelligence for Goods and Services (DGCI), who found them guilty of tax evasion because they misrepresented their business as a restaurant service and ordered them to pay more than RS1BN.
A similar notice was also served to chains Dunkin ‘Donuts, Theobroma and Krispy Kreme.
The notice said that during his investigation, the DGCI interviewed Mad’s chief chef about Donuts, who allegedly said that the donuts were being prepared in a central kitchen and then sent to individual outlets, according to The economic times. At these outlets, “garnish, chocolate pour and packaging” are done before an object is sold, so the products are sold “over the counter”.
On Monday, the Bombay High Court’s Bench of Justices BP Colabawalla and Firdosh P Pooniwalla heard the petition of Himesh Foods Pvt Ltd, the parent company of Mad Over Donuts.
Mad Over Donuts maintained that it met the criteria to be classified as a restaurant, as all its outlets have a kitchen to heat the items sold and the donuts through a final preparation before the sale.
The Indian law enforcement agency argued that the kitchens at these outlets further extend the definition of service to the guidelines under the GST Act, and any care of the Donuts before serving, is “nothing more than making the said products attractive to the customers before selling them over the counter, similar to the types of sweets prepared by different covers.
Attorney Abhishek Rastogi, who represents Mad over Donuts, pointed out that GST notices that cost food at restaurants, eateries, junk and cantines are categorized under the 5 percent tax rate, regardless of whether it is eaten on the site or removed.
“If this order is not treated pragmatically for some reason, there is a great chance of disruption to the food and liquor sector,” he added.
The court ruled that no coercive steps against Mad could be taken over Donuts while the case was pending, and it was listed on March 24.
Over the past few years, India has seen some other tax classification disputes. The most striking occurred in September 2022, when the authorities demanded that frozen Malabar parottas (a layered flatbread cooked mainly in southern Indian states Kerala and Tamil Nadu) should be taxed at a higher pace than frozen rotis (a round flatbread), as they could not be cooked longer.
A similar controversy broke out over popcorn last year, after Indian Finance Minister Nirmala Sitharaman announced that caramel jumping maize would be taxed at a higher rate than ordinary seasoned popcorn, as “anything with added sugar attracts another tax rate”.
The United Kingdom also saw a dispute of a similar nature three decades ago-the famous legal battle over Jaffa cakes, where the courts deliberated on whether it was rusks, which were taxed at 20 percent or cakes, zero judgment for value added (VAT). McVitie’s, the company that makes the Jaffa Cakes, argued that Jaffa Cakes Harden is making when they get outdated, such as cakes, unlike cookies that have become soft and drinks.
