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The curious case of GST on ice cream parlours: To tax at 5% or 18%

The curious case of GST on ice cream parlours: To tax at 5% or 18%

Taxation on food and beverages has been under dispute for more than 50 years now. The controversy emerged from the Northern India Caterers case wherein dine-in restaurant was held to be a service on the ground that the consideration paid was for more than just food. In order to nullify the above judgment, clause 29A(f) was inserted in Article 366 of the Indian Constitution, 1950 by way of The Constitution (46th Amendment) Act, 1982 which created a deeming fiction treating the same as supply of goods as well.

The said amendment gave sufficient teeth to the department to tax this as goods as well and consequently there used to be a debate if restaurant service is a supply of goods, services or both. As taxes on goods and services were levied by different governments, the businesses faced difficulties in applicability issues and to buy peace from the tax authorities, ended up paying both VAT and service tax even when either of them was not payable for the same.

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