The Bombay High Court’s Aurangabad bench, in a relief to the hospitality sector, had delivered an interim stay on the charge of 18% GST on restaurant services situated within hotels where the room tariff surpasses Rs 7,500 per day.
The Union of India, the GST Council, and the State of Maharashtra received the notices from the court, which were seeking their replies on whether this rate differentiation can withstand the test of constitutional validity.
Standalone restaurants draw a 5% GST under the existing rate notification. The rate will surge to 18% if a restaurant functions within a hotel with room tariffs exceeding Rs 7500.
The applicant argues that the connection between the restaurant tax rate and room tariff is arbitrary and lacks a rational basis in relation to the services offered. As a result, this linkage violates the principles of equality and reasonable classification outlined in Article 14 of the Constitution.
A tax expert mentioned that the objective of the decisions of the GST council to fix a lower rate for restaurant services was to make dining cheaper and to pass on the tax rationalisation benefit to the consumer. Due to the hotel tariff charging a higher rate, the spirit and objective of the same reform are completely diluted.
Tax neutrality is the foundation for the concept of GST. Similar restaurant services must attract a uniform rate, irrespective of their location. The existing system results in distortion and discrimination, when even a one-day increase in hotel tariff subjects the restaurant to 18% GST for the whole year.
This approach can lead to unreasonable outcomes. For example, a family coming in for dinner without booking a room may end up paying a higher tax simply because the room is occupied by someone else and costs more than ₹7,500. This situation undermines the consumer benefits that the GST Council aimed to provide.
Experts from the industry have alerted that the existing procedure can affect the business of restaurants, particularly those that are in hotels where tariffs fluctuate seasonally or are inflated by online travel agents’ mark-ups, factors beyond the hotel’s control.
Many worry that the increased rate will deter foot traffic, diminish competitiveness, and undermine the goal of simplifying and rationalising tax structures under GST.
The Bombay High Court, considering such concerns, has granted interim relief and scheduled the next hearing for November 19. For the GST structure, the case specifies a constitutional and economic test, which may redefine how hospitality services are categorised and taxed in India.
