The Bombay High Court has granted an interim stay on the higher 18% GST levied on restaurants located inside premium hotels. The stay comes in response to a petition challenging the rate disparity between such restaurants and standalone eateries, which are taxed at a rate of only 5%.
The matter will next be heard on November 19, according to a report by The Economic Times. The court has also issued notices to the Union Government, the Maharashtra Government, the GST Council and other relevant authorities.
What the Petition Challenges
Under existing GST rules, restaurant services within "specified premises"-that is, hotels charging more than Rs 7,500 per room per night during the previous financial year-are taxed at 18% with Input Tax Credit (ITC).In contrast, standalone restaurants are taxed at 5% without ITC.
The petitioner argued before the Aurangabad Bench that this distinction is "arbitrary, irrational, and commercially unjustified," especially since many hotel-based restaurants cater to walk-in customers who are not hotel guests.
What Are 'Specified Premises'?
Effective April 1, 2025, a hotel is classified as a specified premises if even one of its rooms exceeds the Rs 7,500-per-night threshold. Hotels can also voluntarily declare themselves as specified premises.This rule replaced the earlier concept of "declared tariff," which often inflated rates by including amenities like air-conditioning, furniture, and other services, regardless of discounts offered.
Now, GST on restaurant services inside hotels is calculated on the actual transaction value, not the published room tariff.
Industry Concerns and Practical Issues
Many hotels-especially mid-range establishments have raised concerns, noting that temporary price hikes during festive seasons or long weekends can push them above the threshold, automatically attracting the higher tax rate.
The petitioner's counsel told The Economic Times that the GST Council never intended such an outcome, arguing that restaurants should be taxed based on the nature of their service, not their physical location.
Industry experts believe that the High Court's decision could have a wider impact across the hospitality sector, potentially prompting a policy review by the GST Council.
Why It Matters
The case could set a crucial precedent for how GST applies to hospitality services and whether restaurants inside hotels can be treated differently from standalone ones. The interim relief is being viewed as a positive signal by hoteliers and restaurant owners awaiting clarity on tax parity within the sector.
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