The Supreme Court of India has classified the popular summer drink Rooh Afza as a fruit drink/processed fruit product, setting aside the previous judgments of the Commercial Tax Tribunal and the Allahabad High Court.
The decision of the apex court would serve as relief for Hamdard (Wakf) Laboratories, the manufacturer of Rooh Afza, as the company would be liable for a value-added tax of 4 percent under the Uttar Pradesh VAT Act, 2008.
The tax authorities wanted the drink to be taxed at 12.5 percent instead, as it is not known as a fruit drink among consumers.
However, the Supreme Court bench consisting of Justice BV Nagarathna and Justice R Mahadevan said that several other states treat the product as a fruit drink.
According to a report by Bar & Bench, the court said that the consistent concessional classification of the product across several states strengthens Hamdard’s position and shows that its interpretation as a fruit drink was “neither artificial nor untenable, but a bona fide and commercially recognised interpretation.”
During the assessment years 2007-08 and 2008-09, Hamdard paid VAT at a rate of 4 percent, considering the product a fruit drink falling under Entry 103 of Part A of Schedule II of the UP VAT Act.
However, the tax authorities of Uttar Pradesh wanted to identify the drink as an unclassified commodity taxable at 12.5 percent under the residuary entry in Schedule V.
The Commercial Tax Tribunal and the Allahabad High Court upheld that the classification of the state tax authorities was justified, as the drink is popular as “sharbat” and not a fruit drink.
The High Court also noted that the product contained only 10 percent fruit juice and has been described in its licences as a non-fruit syrup or sharbat.
Giving relief to Hamdard, the top court, however, said that previous conclusions were vitiated by a clear misdirection in law and were based on an erroneous application of settled principles governing fiscal classification.
The detailed judgment of the court has not been released yet.
