The Goods and Services Tax (GST) will apply to ice cream sold in parlours and similar outlets, the CBIC said on Wednesday.
In two sets of circulars, the Central Board of Indirect Taxes and Customs (CBIC) clarified questions raised by the business community regarding the rates for 21 items and services, the decision for which was taken at the 45th GST Council meeting on September 17.
The CBIC claimed ice cream parlours sell already manufactured ice cream and do not have the character of a restaurant. ‘Ice-cream parlours do not engage in any form of cooking at any stage, whereas, restaurant service involves the aspect of cooking/preparing during the course of providing service,’ it said. The company clarified their activity entails supply of ice cream as a manufactured item and not a service, even if certain ingredients are present, adding this would attract GST at an 18 percent rate.
According to EY Tax Partner Abhishek Jain, in some cases advance ruling authorities concluded that ice cream sold in ice cream parlours would be covered under restaurant services (unless in bulk orders) and therefore would attract GST at 5 percent (without credit for input tax). The circular states that since ice cream parlours sell already manufactured ice cream, they do not qualify as a restaurant and, accordingly, would be taxed at 18 percent (with ITC). ‘While the Circular provides necessary clarity on GST treatment for ice cream parlours, it might open area of doubts for other such food suppliers who sell already manufactured food item with only a certain ingredient of service,’ Jain added.
AMRG & Associates Senior Partner Rajat Mohan explained that this change will be applied retrospectively, resulting in massive tax demands for thousands of ice cream parlours across the country. A retrospective application of the clarification would be challenged in court by a number of ice cream chains.
In the CBIC circular, it was also clarified that cloud kitchens and central kitchens are covered under restaurant services. The term ‘restaurant service’ refers to the services offered by restaurants, cafes, and similar eating facilities, such as takeaway services, room service, and delivery services. Accordingly, any entity’s cooking and food supply, whether done exclusively by takeout or door-to-door delivery or through any restaurant, would be included under the definition of restaurant service, it said. In terms of cloud kitchens, the CBIC said services would attract 5 percent GST without ITC benefits.
Regarding fresh and dried fruits and nuts, the CBIC explained that fresh fruit and nuts are those that are meant to be sold in the state as plucked. They remain fresh even when chilled. However, dried fruits and nuts do not qualify as fresh once they have been frozen (cooked or otherwise), or intentionally dried to dehydrate (through sun drying, evaporation, or freezing). At present, dried nuts in these headings carry a 0.5%-12% GST, except for fresh nuts (almond, walnut, hazelnut, pistachio etc). Therefore, ‘exemption from GST to fresh fruits and nuts covers only such products which are not frozen or dried in any manner as stated above or otherwise processed,’ the CBIC stated, adding that dried fruits and nuts will attract 5 and 12 percent GST.