With businesses facing the wrath of the Covid-19 pandemic that has led to many closures over the past year and a half, ice cream makers have reached out to the finance ministry to potentially freeze the levy, it said. That they too may and may become insolvent. If the tax is levied retrospectively then it is forced to shut down operations across the country.
Indian Ice Cream Manufacturers Association (IICMA) has written to the Finance Ministry to reconsider the levy and implement it from October 2021 instead of four years ago. “We request that the Central Board of Indirect Taxes and Customs may kindly take steps to clarify that GST The supply of ice cream by ice cream parlors at the rate of 18% will have only tentative effect” or “if necessary, amend the notification” latest clarification to apply the rate of 5% for the period from 1st July, 2017 to the date (October 6, 2021), it said in the letter, a copy of which has been seen by ET.
The petition stems from fears of getting notices for paying higher levies retrospectively from July 1, 2017 – when India went to the GST regime – instead of the 5% they paid so far. If levied retrospectively, the amount for these businesses would be huge and volatile.
In that case, most ice cream parlors would be unable to pay the difference of 13 percentage points in GST for more than the last four years (18% of the 5% collected so far from customers). Profit margins in the form of own funds are very slim, the body said.
The lobby group has urged that since the ice cream suppliers overall were adopting the 5% rate, no one was taking input tax credit on the supplies and hence any payment would now be made from their own funds.
The tax body, in a circular earlier this month, said supply of ice cream made by ice cream parlors was a “supply of goods” and not a “service”, even if the supply contained some element of service. Hence, supplies are taxable under 18% rate slab instead of 5% applicable on restaurant services.
The lobby of ice cream makers faced the opposite, in contrast to larger hotels or restaurants, which offer the same supply of ice cream, but would not be required to pay any such differential GST, simply because they also offered food. Cooked and supplied from there. Premises, even if such cooking activity on the premises has never been contemplated in law.
“It would be a mockery of justice to put small businesses out of operation,” it argued.
Experts backing the government’s request said that the additional burden on a small-scale industry which is mostly made up of standalone stores will impact their profitability amid the liquidity crunch. MS Mani, Senior Director, Deloitte India said, “The issue of retrospective clarification, which has resulted in an increase in effective GST rates on B2C businesses, has hit them hard as they have already charged a lower rate of GST. are and have passed.” Any additional liability at this stage would further reduce their profitability, which is approaching the end of a pandemic-induced recession period, he said.