Ice-cream parlours facing a meltdown over 18% GST levy

Asia's Tech News Daily

gst, ice creams, ice cream parlours, covid, iicma

Levy of 18% goods and services tax on ice-cream supplies with retro effect from July 2017 has led to a near meltdown for thousands of ice-cream parlours, most of which are small businesses.

With businesses having faced the wrath of Covid-19 pandemic, leading to shutdown of many over the past year and a half, ice-cream manufacturers have reached out to the finance ministry for freezing the levy prospectively, saying they also may go bankrupt and be forced to shut down operations countrywide if the tax is imposed retrospectively.

The Indian Ice-cream Manufacturers’ Association (IICMA) has written to the finance ministry to reconsider the levy and make it applicable from October 2021 rather than four years earlier. “We request that the Central Board of Indirect Taxes and Customs may kindly take steps to either clarify that the GST rate of 18% on supply of ice cream by ice-cream parlours would have only prospective effect” or, “if necessary, amend the notification” to apply the rate of 5% for the period from July 1, 2017 till the date of the latest clarification (October 6, 2021), it said in the letter, a copy of which ET has seen.

The plea stems from the fear of getting notices asking them to pay the higher levy retrospectively from July 1, 2017 – when India moved to the GST regime – instead of the 5% they paid till now. If levied retrospectively, the amount will be huge and unsustainable for these businesses.

In that case, most of the ice-cream parlours would be unable to pay the difference of 13 percentage points in GST (18% minus the 5% they have so far collected from customers) for the last more than four years from out of their own funds as the profit margins are very thin, the body said.

The lobby group has urged that since the ice cream suppliers on the whole were adopting the 5% rate, no one was taking input tax credit on supplies and hence any payment now will be done from their own funds.

The tax body had earlier this month said in a circular that supply of ice cream made by ice-cream parlours was “supply of goods” and not a “service”, even though the supply has certain ingredients of service. Hence, the supply is taxable under the 18% rate slab instead of 5% applicable on restaurant services.

The ice cream manufacturers lobby laid out the contrast it faced versus big hotels or restaurants who offer the same supply of ice cream but would not be required to pay any such differential GST for the mere reason that they had also cooked food and supplied from the same premises, even though such activity of cooking on the premises is never contemplated in the law.

“This would be a travesty of justice to push small businesses out of operation,” it argued.

Experts backed the request to the government, saying that additional burden on a small-scale industry made up mostly of standalone stores would impact their profitability amid a liquidity crunch. “The issue of retrospective clarifications which result in an increase in the effective GST rates on B2C businesses puts them in considerable difficulty as they have already charged and passed on the lower rate of GST,” said MS Mani, senior director at Deloitte India. Any additional liability at this stage will erode their profitability further, coming at the end of a period of a pandemic-induced slowdown, he added.

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