The ice cream sector will have to wait to be included in the Composition Scheme of Goods & Services Tax, with the GST Council referring the matter back to the Fitment Committee.
This issue is critical for small ice cream manufacturers. This February the Delhi High Court said that the GST Council should reconsider exclusion of ice cream from the list of manufacturers eligible for composition scheme within three months. Under the scheme, the assesses, manufacturers and traders of goods have to pay 1 percent of turn over as tax; restaurants not serving alcohol 5 percent; and other service providers 6 percent. Businesses with annual turnover of up to ₹1.5 crore can opt for composition scheme but they will not get the benefit of input tax credit.
Value addition
According to a senior government official, this issue was placed before the GST Council on Friday., “It asked the Fitment Committee to examine this matter further,” he told BusinessLine.
The Committee observed that revenue implication of inclusion of ice cream under composition has significant implication 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 there is significant value addition and consumption,” he said.
Another official said that even in pre-GST regime, ice cream sector was not a part of composition in a number of States. Using data provided by Amul, he said that 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 percent of the value of inputs. Hence, the ice cream manufacturer is required to pay a significant portion of the liability in cash as input tax credit is low,” he said.
Market size
According to 2019 data, the Indian ice cream market is around ₹15,000 crore. 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, Mother Dairy etc. However, there are many small vendors operating locally who may have turnover of up to ₹1.5 crore.
Source: thehindubusinessline.com
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Small scale ice cream manufacturers use skimmed milk powder, vegetable oil and butter for making ice cream. GST rate for SMP is 5%, Vegetable Oil is 5%, Butter is 12%.
Comparing the input cost of small scale ice cream manufacturers to Amul is like comparing apples to oranges. Amul is highly automated in its manufacturing and directly uses milk and cream which are GST exempted as its major raw material where as Small Scale ice cream factories are labour intensive and use Skimmed Milk Powder as its major raw material.
The major raw material for Bakeries is wheat (GST exempt), pickle is vegetables (GST exempt). Going by the logic of GST council, should these industries too be forbidden from availing the composition scheme?
Small Scale Ice Cream makers should be allowed to avail GST composition scheme.
Small scale ice cream manufacturers use skimmed milk powder, vegetable oil and butter for making ice cream. GST rate for SMP is 5%, Vegetable Oil is 5%, Butter is 12%
Comparing the input cost of small scale ice cream manufacturers to Amul is like comparing apples to oranges. Amul is highly automated in its manufacturing and directly uses milk and cream (GST exempted) as its major raw material where as Small Scale ice cream factories are labour intensive and use Skimmed Milk Powder(GST 5%) as its major raw material.
The major raw material for Bakeries is wheat (GST exempt), pickle is vegetables (GST exempt). Going by the logic of GST council, should these industries too be forbidden from availing the composition scheme?
Not only do small scale manufacturers provide more employment but they also incur input GST@5% while using Skimmed Milk Powder (unlike Amul which uses milk). As directed by the Delhi High Court, ice cream makers should be allowed to use GST composition scheme.