'Marketing Labels Not Decisive For Tax Classification', Supreme Court Holds Rooh Afza Taxable As Fruit Drink

Observing that marketing labels cannot dictate a product's tax category, the Supreme Court on Wednesday (February 25) held 'Rooh Afza' to be a fruit-based beverage preparation intended for dilution, qualifying for a concessional tax rate of 4%, despite it being marketed as a 'Sharbat', which attracts a higher tax rate of 12.5%.

“…once it is demonstrated that the product is a fruit-based beverage preparation intended for dilution and consumption, it bears a reasonable and substantial claim to classification as a “fruit drink” within Entry 103. It cannot be relegated to the residuary entry merely because it is marketed as a “sharbat””, observed a bench of Justices BV Nagarathna and R Mahadevan.

The bench allowed the Hamdard Laboratories appeal, setting aside the Allahabad High Court judgments that had placed the Rooh Afza under a residuary VAT entry at 12.5%.

The issue was whether Rooh Afza, containing 10% fruit juice along with herbal distillates and sugar syrup, should be taxed as a fruit drink (4%) or as an unclassified item attracting 12.5% VAT. Tax authorities relied on its licensing description as a “non-fruit syrup/sharbat” under food regulations to justify the levying of 12.5% VAT.

Holding that the product's regulatory or marketing labels do not override its true nature for fiscal classification, the judgment authored by Justice Mahadevan observed that what matters is the composition, intended use, and commercial identity of the product for determining the classification of the product for tax purposes.

“The nomenclature adopted by the parties, or the description of the product as a “non-fruit syrup” under the licensing statute, is not determinative for the purposes of classification under a taxing statute. What is decisive is the nature, composition and commercial identity of the product. If, on a proper application of the common parlance and essential character tests, the product reasonably answers the description of a “fruit drink”, the same cannot be denied merely on account of its label or regulatory categorization.”, the court observed.

Applying the “essential character” test, the Court held that although sugar syrup predominates by volume, it functions as a carrier and preservative. The beverage character, flavour, aroma, and consumer perception flow from the fruit juice and allied distillates, bringing the product within the specific “fruit drink” entry.

“…though invert sugar syrup constitutes approximately 80% by volume, its function is essentially that of a carrier, sweetening medium and preservative base. It does not determine the commercial or beverage identity of the product. 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.

Also, noting that several States, namely Delhi, Gujarat, West Bengal, Madhya Pradesh, and Andhra Pradesh treated the Rooh Afza as falling within fruit-based beverage entries, the Court find no reason for the State Of UP to classify Rooh Afza as a non-fruit drink.

“Where similarly worded entries across multiple jurisdictions have been construed in a particular manner, such uniformity assumes evidentiary value in determining commercial understanding of the product, and whether the assessee's interpretation is at least a reasonably plausible view.”, the court said.

Accordingly, the Court 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 appeal was allowed.

Cause Title: M/S HAMDARD (WAKF) LABORATORIES VERSUS COMMISSIONER, COMMERCIAL TAX, U.P. COMMERCIAL (and connected matter)

Citation : 2026 LiveLaw (SC) 197

Click here to download judgment

Appearance:

For Petitioner(s) Mr. Arvind P. Datar, Sr. Adv. Mr. Aditya Bhattacharya, Adv. Mr. Abhishek Kumar Singh, AOR Mr. Ritwik Tyagi, Adv. Mr. Simran Tandon, Adv. Ms. Akriti Sharma, Adv. Mr. Akash Pratap Singh, Adv.

For Respondent(s) Mr. Bhakti Vardhan Singh, AOR