The imposition of 18% Goods and Services Tax on ice-cream supplies with retrospective effect has put the ice-cream parlour business in jeopardy. The Covid-19 pandemic and subsequent lockdowns and other restrictions forced them to close the business in the last year and a half. Ice-cream makers have now petitioned the finance ministry to freeze the levy prospectively, claiming that if the tax is imposed retrospectively, they will go bankrupt, The Economic Times has reported.
The Indian Ice-cream Manufacturers’ an Association (IICMA) has written to the finance ministry, requesting tax imposition effect from October 2021, rather than retrospectively.
The newspaper quoted the letter as saying that the Central Board of Indirect Taxes and Customs may kindly take steps to either clarify that the GST rate of 18% on ice cream supplied by ice-cream parlours has only a prospective effect.
The petition is based on the concern about receiving notices requiring them to pay the higher charge retroactively from July 1, 2017 — when India switched to the GST regime — rather than the 5% they had been paying up to that point.
Ice-cream makers said since profit margins are so small most 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) out of their own finances for the last more than four years.
Since all ice-cream suppliers have adopted the 5% rate, no one is taking input tax credit on supplies, the report quoted the lobby group as saying, therefore any payment will have to be made from their own funds.
The GST Council, which had met in Lucknow in September, had noted that ice cream parlours sell already manufactured ice and hence would draw 18% tax.
Even though ice cream created by ice cream parlours has certain ingredients of service, the tax authority said in a circular earlier this month that the supply of ice cream made by ice cream parlours was “supply of products” and not a “service.” As a result, rather than the 5% rate that applies to restaurant services, the supply is taxed at 18%.
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