Though the matter is very important for small ice cream manufacturers, nonetheless their wait has been prolonged for the addition in the Composition Scheme of Goods & Services Tax, with the GST Council referring the matter back to the Fitment Committee.
This February the Delhi High Court said that the GST Council should reassess exclusion of ice cream from the list of manufacturers eligible for composition scheme within three months. Under the scheme, manufacturers and traders of goods have to pay 1 per cent of turn over as tax; restaurants not serving alcohol 5 per cent; and other service providers 6 per cent. Businesses with an annual turnover of up to ₹1.5 crores can opt for composition scheme but they will not get the benefit of input tax credit.
The issue was cited before the GST Council that has referred it to the Fitment Committee to scrutinize this matter further. The Committee saw that the revenue implication of the inclusion of ice cream under composition has significant implications as it has high-value addition.
“The Committee also felt that there is a need for a detailed study of coverage (inclusions and exclusions) from composition scheme, particularly as regards sectors where it is significant value addition and consumption.
Even in the pre-GST regime, the ice cream sector was not a part of the composition in a number of States. For every ice-cream manufactured of value ₹100, ₹54 worth of milk and cream is used, which is exempted from GST.
Total tax paid on inputs worth ₹100 is ₹4.17 which is less than 5 per cent of the value of inputs. Hence, the ice cream manufacturer is required to pay a significant portion of the liability in cash as the input tax credit is low.
According to 2019 data, the Indian ice cream market is around ₹15,000 crore and brands such as Amul and Kwality Walls dominates the market with nearly three-fourth of the share. There are other big players such as Vadilal, Naturals, Havmor, and Mother Dairy, etc. However, there are many small vendors operating locally who may have a turnover of up to ₹1.5 crore.