GST levy of 18% on ice-cream supplies with retro effect from July 2017 has a devastating impact on ice-cream parlours in India, most of which are small businesses.
Retro effect means that the tax would levy on all the transactions that were conducted in the past, in this case, July 2017.
Businesses have faced the effects of the disastrous pandemic. It has led to the closure of many ice-cream shops for almost a year and a half. The ice-cream parlour owners have reached out to FM Nirmala Sitharaman for holding the levy.
If the levy gets imposed retrospectively, ice-cream shops might go bankrupt, and their operations will shut down.
The Indian Ice-cream Manufacturers’ Association (IICMA) has requested the finance minister to re-examine the levy and make it applicable in October 2021.
They have requested to apply a GST of 18% on the supply of ice cream prospectively (on the enactment date of the law or any specified future date) or the retrospective tax from July 2017 at 5% GST.
If one demands huge tax rates, retrospectively, the businesses might turn out to be unsustainable.
The ice-cream parlours were unable to pay the difference of 13 percentage points (18% and 5% that they collected from customers) because their profit margins were too thin.
Every ice-cream parlour has adopted to 5% GST levy, and the input tax levy (paying the balance after deducting the tax that was paid) was also not taken, so now, the payment of taxes will be from their funds.
The tax body mentioned that supply of ice cream made by ice-cream parlours is not a ‘service’ but a ‘supply of goods.’ Hence, the ice cream supply is taxable under an 18% GST slab instead of 5%.
Ice-cream parlours said that restaurants that provide a similar supply of ice-creams are not required to pay such differential GST because they have supplied the ice cream from a place where they have cooked food. The tax body does not consider the activity of cooking at restaurants. It is a travesty of justice to small-scale businesses.
Experts said that any additional burden on small-scale businesses erodes profitability further amid a liquidity crunch. They suggest that the GST rates should be the same for restaurants and ice-cream parlour services.
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