At least six major donut and bakery chains, including Dunkin’ Donuts and Mad Over Donuts are under scrutiny from Goods and Services Tax authorities over the classification of their services as authorities argue that these businesses do not qualify as restaurant services, which are taxed at 5% GST, according to people familiar with the matter.Show cause notices have been issued to Dunkin’ Donuts, Mad Over Donuts, Theobroma, and Krispy Kreme, demanding 18% GST on their sale of donuts and bakery items, the people said, adding that the notices cover the period between the fiscal 2016-17 and fiscal 2023 and focus on whether the sale of donuts and bakery products falls under restaurant services, which are taxed at 5%.Restaurant services are eligible for the lower tax rate but do not receive input tax credit on certain goods and services under the GST law. GST authorities argue that these donut chains do not meet the criteria for restaurant services and must instead pay 18% GST, applicable to food products and services outside the restaurant category.The tax demands in these notices amount to Rs 50-60 crore for each company, the people said.Mad Over Donuts has moved the Bombay High Court to challenge the GST demand. The case is expected to be heard next week.The adjudicating authority has upheld the revenue department’s order to impose the higher GST rate, stating that these businesses do not qualify as restaurant services.“The supply of food, articles, and any associated service, in any manner whatsoever, has been explicitly classified as a supply of service under Schedule II of the Central Goods and Services Tax (CGST) Act. Consequently, the applicable tax rate of 5% for services is also extended to restaurant services,” said Abhishek A Rastogi, founder of Rastogi Chambers, who is representing the taxpayers.Rastogi added that restaurant services include establishments such as restaurants, eating joints, messes, and canteens, whether food is consumed on the premises or taken away.A legal expert said the definition of restaurant services includes goods supplied as part of a composite service, which under the CGST framework is taxed as a service.The distinction between food sold in a restaurant setting and in bakeries or donut shops remains a grey area. The legal outcome could have implications for the food and beverage sector by setting a precedent for GST classification.GST Notice To Insurers Could Lead To Scrutiny From Other Agencies, Say Experts. Read more on GST by NDTV Profit.