Since the first week of October, ice cream parlours in various states started receiving summons from the GST authorities, seeking clarifications pertaining to the newly increased rates to be levied on them as fixed by the GST council in September.

The parlours are facing the heat as the summons virtually indicate that they may have to scoop out more tax in retrospective from as far as 2017 over and above of what they have already deposited.

A summon accessed by India Today TV specifically mentions, “Summons for paying 13 per cent difference since November 2017.”

WHAT’S THE HEAT ABOUT

The GST council headed by Finance Minister Nirmala Sitharaman in a meeting in Lucknow on September 17 took several decisions. One was regarding the differentiation between restaurants and ice cream parlours.

The GST Council, as part of a constant rationalisation process, clarified that ice cream parlours don’t manufacture ice cream and only sell already manufactured ice cream and hence they would be brought under the 18 per cent tax slab from the 5 per cent slab.

On October 6, the Finance Ministry in a follow-up clarification said, “Ice cream and do-not-cook/prepared ice cream for consumption, like in a restaurant, is a supply of ice cream as goods and not as a service, even if the supply has certain ingredients of service”.

By judging ice cream parlours out of the restaurant category as a provider of service, the ministry clarified that ice cream sold by a parlour or any similar outlet would attract GST at the rate of 18 per cent.

Till October 5, ice cream parlours were charging 5 per cent from customers on their retail sales.

As per the command of the GST council and the finance ministry clarification, they switched to charging 18 per cent from October 6.

In November 2017, the GST council brought cheer to the restaurant industry, including ice cream parlours, by slashing the tax slab fixed for them. Before that, air-conditioned restaurants were to charge an 18 per cent tax rate and a tax slab of 12 per cent was fixed for non-air-conditioned restaurants.

After repeated pleas, the GST council slashed the rates to 5 per cent GST on all food items from November 15, 2017.

The cut came with a rider. All standalone restaurants (not those in hotels) would be charged 5 per cent tax without any input tax credit.

From July 2017, there was no differentiation between ice cream parlours and restaurants, so the parlours or outlets in similar businesses started charging only 5 per cent tax.

But the GST council realised that the parlours weren’t restaurants in classic business terms as they were not making ice cream.

The issue was debated in the GST council in September this year, which drew the line between the parlours and restaurants. That pushed the parlours into the 18 per cent bracket from October 6.

THE SUMMONS WITH RETROSPECTIVE SPIN

By late October, ice cream parlours started receiving summons with a one-day notice from GST authorities in several states.

Copies of a few summons accessed by India Today TV stated that “Officials are making an inquiry in connection with the GST Case under section 70 of CGST Act 2017, section 14 of the Central Excise Act 1944, read with section 83 of the Finance Act, 1994 and further read with section 174 (2) of the CGST Act, 2017.”

The first three sections cited in the summons deal with the power to summon people to provide evidence and documents; the fourth pertains to what would happen in case of repeal of a law.

The summons had arrived with a long list of documents the recipients had to bring with them and produce before the local Directorate General of GST intelligence ( DG-GSTI).

The 13 categories of documents include copies of the Income Tax Returns along with Form 26AS, Profit & Loss Accounts, copies of all bank accounts, copies of agreements with ice cream stores, details of billing software, month-wise sales report, month-wise GST liabilities, tax paid in cash and ITC, note on business arrangement with online platforms besides others.

Of these, 11 categories of documents to be submitted had to be from either FY 2017-18 to FY20-21 or 1 April 2017.

Alarm bells started ringing in the ice cream industry as they were asked to furnish details on sales made with 5 per cent from 2017 onwards.

A businessman who runs a chain of parlours in several South Indian cities said, ”The Covid-19 pandemic has crushed the industry. Many outlets have shut shops, rendering hundreds jobless. These summons are scary as they could mean parlour owners are liable for 18 per cent GST for the past supplies with effect from July 1, 2017. This would drive most of us to bankruptcy.”

This could also mean huge logistics problems. If parlours are asked to cough up 13 per cent additional tax from November 2017 when they started charging 5 per cent tax without an input tax credit, the money would come from their pockets as they cannot go back to the customers who purchased their ice creams (and paid 5 per cent only) several years ago

A Gujarat ice cream parlour owner said, ”In parlours, we provide the customer with an invoice. We do have records of sales but we don’t keep records of customers. How will we find a buyer from 2017? And why will customers be ready to pay retrospective tax?”

The Indian Icecream Manufacturers Association (IIMA) recently sent an SOS to the Finance Ministry in which they have pleaded for quick amendments and clarifications on the rules.

Technically, the decision on the tax bracket comes from the GST council, but the ministry, through a clarification, can ease the situation as several parlour owners have already deposed before tax officials since the last week of October.

The IIMA representation to the Ministry requests that, “The board may kindly take steps either to clarify that the GST rate of 18 per cent on supply by ice cream parlours would have only prospective effect, and if necessary, to suitably amend Notification No.11/2017-Central Tax (Rage) to apply the rate of 5 per cent GST for the period from July 01, 2017, till the date of the present clarification i.e., October 6, 2021.”