The Bombay High Court has recently granted an interim stay on the levy of 18% goods and services tax (GST) on restaurant services operating within hotels where the room tariff exceeds ₹7,500 per day. This development follows a petition challenging the validity of the GST rate notification that links restaurant GST to the hotel’s room tariff.
The court’s Aurangabad bench has issued notices to the Central Government, Maharashtra Government, GST Council, and other relevant state authorities. The matter is scheduled for further hearing on November 19, 2025.
GST Structure and the Issue at Hand
Currently, the GST framework differentiates based on hotel tariffs:
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Standalone restaurants: GST at 5%
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Restaurants inside hotels with room tariffs above ₹7,500: GST at 18%
The petitioners argue that this differential taxation is arbitrary and commercially unjustified, especially for restaurants serving walk-in customers who are not hotel guests. The linkage of restaurant GST to room tariffs, they claim, fails to reflect the actual commercial activity of the restaurant itself.
Industry Impact and Concerns
The case has drawn attention from the hospitality sector, which has long raised concerns about the complexity and unpredictability of GST classifications. Key issues highlighted include:
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Dynamic pricing by online travel agents often causes effective room rates to exceed ₹7,500, even if the hotel’s direct tariff is lower, inadvertently increasing GST liability.
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Operational and pricing challenges for hotel restaurants, as they may face higher tax rates without any corresponding increase in revenue from restaurant services.
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Competitive disadvantage compared to standalone restaurants taxed at a lower rate.
Implications for Hotel and Restaurant Operators
For hotels and restaurants, this interim stay provides temporary relief, but careful planning is necessary:
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Review pricing strategies to account for GST exposure.
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Document walk-in vs. hotel guest sales to ensure clear compliance.
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Monitor court developments as the November 19 hearing could redefine GST applicability in this segment.
The case underscores the broader need for clarity and rationalization in GST classifications, particularly where taxes are linked to parameters independent of the actual restaurant service provided.
