Supreme Court on Wednesday classified ‘Sharbat Rooh Afza’ as a fruit drink. This means the Value Added Tax (VAT) rate on the product will be lower.
“It is held that ‘Sharbat Rooh Afza’ is classifiable under Entry 103 of Schedule II, Part A of the UPVAT Act as a fruit drink/processed fruit product and is exigible to VAT at the concessional rate of 4 per cent during the relevant assessment years,” a division bench of Justices R Mahadevan and Justice BV Nagarathna said on an appeal by Hamdard (Wakf) against a ruling by UP Commercial Tax Department.
“The impugned judgment(s) affirming classification under the residuary entry and levy at 12.5 per cent are set aside,” the bench said. The dispute pertains to the period from January 1, 2008 to March 31, 2012. The company argued that its product is a non-alcoholic sweetened beverage prepared from invert sugar and blended with fruit juices, vegetable extracts and added flavours. Further, fruit juice content in is 10 per cent. During the period under question, the company paid VAT at the rate of 4 per cent treating the product as “Fruit Drink” or “Processed Fruit.”
The bench observed that the product contains declared fruit juice and derives its essential beverage identity from fruit-based constituents. Entry 103 of Schedule II, Part A of the UPVAT Act is illustrative and inclusive in character and does not prescribe any quantitative threshold of fruit content. Regulatory or licensing classification cannot control or curtail the interpretation of a fiscal entry.
“The Revenue has failed to discharge the burden of proving that the product falls outside Entry 103 and within the residuary entry,” the bench said. Resort to the residuary entry is impermissible where classification under a specific entry is reasonably and sustainably possible.
According to Ikesh Nagpal, Lead-Indirect Tax, AKM Global, the Court has emphasized that classification must be determined based on the product’s essential character, intended use, and commercial understanding, rather than through an unduly restrictive interpretation.
“By recognising Rooh Afza as a ‘food drink’, the Court has reinforced the continued relevance of the common parlance and functional test in resolving classification disputes. The judgment provides important clarity for manufacturers and underscores that residuary entries cannot be used to expand tax liability beyond the framework of the statute. It also offers valuable guidance for legacy disputes, highlighting that classification must follow a principled and legally grounded approach,” he said.
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