Rooh Afza To Be Classified As Fruit Drink/Processed Fruit Product And Taxed At 4% Under UP VAT Act : Supreme Court
The Supreme Court today held that “Sharbat Rooh Afza” is classifiable as a “fruit drink / processed fruit product” under Entry 103 of Schedule II, Part A of the Uttar Pradesh Value Added Tax Act, 2008 and is taxable at 4 percent.
A bench of Justice BV Nagarathna and Justice R Mahadevan set aside Allahabad High Court's judgment that had held that Rooh Afza has to be classified under the residuary entry and taxed at 12.5 percent.
"Accordingly, 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% during the relevant assessment years. The impugned judgment(s) affirming classification under the residuary entry and levy at 12.5% are set aside", the Court held.
The Court held -
"i) The product contains declared fruit juice and derives its essential beverage identity from fruit-based constituents.
ii) 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.
iii) Regulatory or licensing classification cannot control or curtail the interpretation of a fiscal entry;
iv) The Revenue has failed to discharge the burden of proving that the product falls outside Entry 103 and within the residuary entry; and
v) Resort to the residuary entry is impermissible where classification under a specific entry is reasonably and sustainably possible."
The dispute concerned the classification of “Sharbat Rooh Afza” manufactured by M/s Hamdard (Wakf) Laboratories under the U.P. Value Added Tax Act, 2008 from January 1, 2008 to March 31, 2012.
The issue before the Allahabad High Court was whether “Sharbat Rooh Afza” was classifiable under Entry 103 of Part A of Schedule II of the UP VAT Act, which covers Processed or preserved vegetable & fruits including fruit jams, jelly, pickle, fruit squash, paste, fruit drink & fruit juice (whether in sealed containers or otherwise), and taxable at 4 percent.
The Revenue authorities treated the product as an unclassified item falling under the residuary Entry 1 of Schedule V, which applies to all goods except goods mentioned or described in Schedules I to IV of the Act, and taxed it at 12.5 percent.
For the assessment years 2007-08 and 2008-09, the manufacturer deposited VAT at 4 percent on the sales of “Sharbat Rooh Afza” along with monthly returns. The assessing authority made provisional assessments for several months holding that the product was an unclassified item liable to tax at 12.5 per cent.
The Commercial Tax Tribunal, Ghaziabad, dismissed appeals against the orders and held that “Rooh Afza” was not a fruit drink but a “Sharbat” and therefore an unclassified item liable to tax at 12.5 per cent.
Before the High Court, Hamdard relied on earlier Supreme Court decisions in its own cases under the Fruit Products Order, 1955 and the Central Excise Tariff Act, 1985, to contend that “Rooh Afza” had been recognised as a fruit-based beverage.
The Revenue argued that in common and commercial parlance the product was understood as “Sharbat” and not as fruit juice or fruit drink. It relied on earlier decisions of the Tribunal and the High Court holding that “Rooh Afza” was a sugar concentrate or syrup.
The High Court observed that the words “fruit drink” and “fruit juice” in Entry 103 were not defined in the Act and were not used in a technical sense. Applying the common parlance test, it observed that if a customer asked for fruit drink, “Sharbat Rooh Afza” would not be supplied, and vice versa.
It also noted that the manufacturing licence described the product as “Non Fruit Syrup/Sharbat” and the FSSAI communication classified it as “Non Fruit Syrup” since it contained only 10 per cent fruit juice.
On this basis, the High Court upheld the classification of “Sharbat Rooh Afza” as an unclassified item under Schedule V liable to tax at 12.5 per cent. Hamdard challenged this judgment before the Supreme Court by filing the present Special Leave Petitions.
Supreme Court Verdict
The Supreme Court noted that the product contains 10% fruit juice, comprising 8% pineapple and 2% orange juice, along with 80% invert sugar syrup and small quantities of distillates and extracts.
The FSSAI had clarified on July 31, 2009 that a “fruit syrup” must contain at least 25% fruit juice and that the appellant's product would be treated as a “non-fruit syrup containing 10% fruit juice”.
Relying on this clarification and the licence under the Fruit Products Order, 1955 permitting manufacture of “non-fruit syrup / sharbat”, the Revenue argued that the product could not be treated as a fruit drink and would fall under the residuary entry. It also contended that Entry 103 does not expressly include “sharbat” and that in common parlance the product is understood as a sugar-based concentrate
The Court held that regulatory classifications under the Fruit Products Order do not control fiscal classification unless the taxing statute adopts them.
“It is trite that a fiscal statute must be interpreted in its own language. Regulatory enactments such as the FPO or standards framed by the Food Safety and Standards Authority of India operate in a distinct domain namely quality control, safety, and licensing. They are neither determinative nor conclusive for purposes of fiscal classification unless a taxing statute expressly incorporates or adopts such definitions”, the Court held.
As “fruit drink” is not defined under the UPVAT Act, the common parlance test must apply and classification must depend on composition, product literature, label, character, user, and commercial understanding, the Court stated.
“classification must be determined on the basis of how the product is understood in common or commercial parlance, having regard to tangible material such as its composition, product literature, label, character, and user, and not merely on technical or regulatory descriptions”, the Court observed.
It noted that the Revenue had relied mainly on the licence and FSSAI clarification, without producing trade enquiry, consumer survey or market evidence to show that the product is not understood as a fruit-based beverage. The burden to justify classification under the residuary entry lay on the Revenue, and that burden was not discharged, the Court held.
“Reliance has been placed primarily on licensing norms and the nomenclature “sharbat”. Such material, without more, cannot substitute the evidentiary burden required to displace classification under a specific entry. Accordingly, it must be held that the Revenue has failed to discharge the burden cast upon it in law”, the Court held.
On the essential character test, the Court held that though sugar syrup forms about 80% of the product by volume, it acts as a carrier and preservative base while the flavour, aroma, and identity of the beverage is derived from the fruit juice component and allied distillates.
“The flavour, aroma and beverage character are derived from the fruit juice component and allied distillates, which together impart to the product its distinctive character as a flavoured sharbat intended for dilution and consumption as a refreshing drink. Mechanical reliance upon the quantitative predominance of invert sugar syrup would therefore be misplaced. Classification must follow the component that confers upon the product its essential beverage character”, the Court observed.
The Court also noted that Chapter Note 3 of Chapter 21 of the Customs Excise Tariff Act, 1985 defines “sharbat” as a non-alcoholic sweetened beverage or syrup containing not less than 10% fruit juice or flavoured with non-fruit flavours. Entry 103 of Schedule II Part A, it observed, is inclusive and does not prescribe any minimum fruit content.
“Entry 103 of Schedule II, Part A of the UPVAT Act is couched in inclusive terms. It covers “processed or preserved vegetables and fruits including fruit jams, jelly, pickle, fruit squash, paste, fruit drink and fruit juice.” The Entry does not prescribe any minimum threshold of fruit content. The use of the expression “including” expands the scope of the entry and indicates the legislative intent to encompass a broad category of fruit-based preparations. In the absence of any quantitative stipulation, it would not be appropriate to read into the entry a rigid percentage requirement that the Legislature has consciously not provided”, the Court held.
It further highlighted that in Delhi, Gujarat, West Bengal, Madhya Pradesh and Andhra Pradesh, the product had been taxed under fruit-based beverage entries at concessional rates of 4% to 5%. The Court observed that while such classification in other states is not binding on UP, it has evidentiary value in assessing commercial understanding.
Holding that the product reasonably falls within Entry 103 and the recourse to the residuary entry was impermissible where Entry 103 can reasonably apply, the Court set aside the impugned judgments.
“Reliance has been placed primarily on licensing norms and the nomenclature “sharbat”. Such material, without more, cannot substitute the evidentiary burden required to displace classification under a specific entry. Accordingly, it must be held that the Revenue has failed to discharge the burden cast upon it in law”, the Court observed.
It held that “Sharbat Rooh Afza” is taxable at 4% for the relevant assessment years and directed grant of consequential relief, including refund or adjustment of excess tax, in accordance with law.
Case no. – SLP(C) No. 6074 - 6095 / 2019
Case Title – M/s. Hamdard (Wakf) Laboratories v. Commissioner of Commercial Tax
Citation : 2026 LiveLaw (SC) 197