On 6th October 2021, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 164/20/2021-GST to clarify how GST should apply to ice-creams parlours. According to this Circular, ice-cream parlours sell goods (manufactured), rather than provide services like restaurants. Therefore, these parlours must charge 18% GST instead of the lower 5% GST that applies to restaurant services.
This blog critically analyzes the reasoning behind the Circular and examines its impact on the ice-creams business.
What Does GST Consider a ‘Restaurant Service’?
Notification No. 11/2017 – Central Tax (Rate) defines a restaurant service as the supply of food or drinks along with any service provided by an eating place. This includes dine-in, takeaway, room service, or delivery.
The key phrase—“any service”—indicates that restaurants must supply not just food but also additional services, such as preparation, serving, seating, or ambiance.
Even cloud kitchens, which don’t offer dine-in options, qualify as restaurant services under this rule.
What Does the CBIC Say About Ice-Cream Parlours?
The CBIC’s Circular states that parlours differ from restaurants because:
- They sell ready-made ice-creams, not freshly cooked food.
- They don’t engage in “preparation” in the same way that restaurants do.
- Therefore, their supply qualifies as goods, not services.
- As a result, their sales attract 18% GST with input tax credit (ITC) instead of 5% GST without ITC.
However, this reasoning oversimplifies the issue and causes confusion for several reasons:
- It treats cooking and preparation as the same, even though they differ.
- It claims parlours don’t prepare food, despite them often scooping, mixing, and garnishing.
- It ignores the fact that many parlours offer seating, service, and ambiance, which resemble the experience in restaurants.
GST Rates on Ice-Creams – At a Glance
Understanding the rate differences reveals why this issue matters:
| Type of Supply | GST Rate | Input Tax Credit (ITC) |
|---|---|---|
| Ice-cream sold by manufacturer or parlour | 18% | Yes |
| Ice-cream supplied as part of restaurant service | 5% | No |
| Pre-packaged and labelled ice-cream (retail) | 18% | Yes |
| Ice-cream from cloud kitchens or takeaways | 5% | No |
How Do Hotels and Cafes Serve Ice-Cream?
When hotels, cafes, or restaurants serve it as part of a meal or dessert, they treat it as part of the restaurant service. In this case:
- 5% GST applies (without ITC), like any other food item in a restaurant.
- Even when the it isn’t cooked, it still forms part of a service experience that includes preparation, serving, and dining.
However, when these establishments sell pre-packaged ice-cream separately—like from a freezer for takeaway—they treat it as a goods sale at 18% GST.
So, how it is served—as dine-in or retail—significantly affects the GST rate.
Critical Analysis: Why the Circular Falls Short
Let’s examine the key problems with the CBIC’s logic in simple terms:
1. Parlours Provide Services Too
Parlours don’t just sell ice-cream—they serve it with toppings, cones, cups, and often provide seating and music. This makes it more than just a goods transaction.
2. Parlours Function as Eating Places
Customers visit parlours to eat and enjoy the experience, not just to purchase a packaged product. This experience mirrors what restaurants offer.
3. Preparation Isn’t Limited to Cooking
Even if parlours don’t cook it, they still scoop, garnish, and customize it before serving. This preparation qualifies as a service.
4. Parlours Add Value with Seating and Ambience
Many parlours create a clean, welcoming space where people can relax and enjoy it. This value-added environment makes the experience service-oriented, like in restaurants.
5. The Circular Misinterprets the Law
The law clearly states that any food supply with a service component qualifies as a restaurant service. Yet, the Circular acknowledges that parlours offer some services and still classifies the supply as a sale of goods. This interpretation contradicts the legal definition.
Conclusion: A Need for a Better View
By treating parlours as sellers of goods, the Circular forces them to charge 18% GST, while restaurants enjoy a lower rate of 5%. This creates a clear disparity, especially since many parlours provide services similar to restaurants.
Worse still, because the clarification applies retrospectively, parlours may face backdated tax demands and legal troubles.
Rather than adopting a blanket rule, the GST framework should assess each case individually. If a parlour offers seating, ambiance, and customized serving, tax authorities should treat it like a restaurant.
To ensure fairness and compliance, the GST Council must issue a more practical and balanced clarification that reflects the actual service nature of modern ice-cream parlours.
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Published on: August 8, 2025