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; andv) 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 VerdictThe 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...

Rooh Afza To Be Classified As Fruit Drink/Processed Fruit Product And Taxed At 4% Under UP VAT Act : Supreme Court

Amisha Shrivastava

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