Sharbat Rooh Afza Classified as ‘Fruit Drink’ Under UPVAT Act; Supreme Court Rejects Residuary Tax Entry

Held: The Supreme Court 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 therefore taxable at the concessional rate of 4%. The Court ruled that regulatory classification under food safety laws cannot control interpretation of fiscal entries under taxation statutes, and that classification must be determined through the common parlance test, the essential character test, and the statutory language of the taxing entry. Since the product contains fruit juice and derives its beverage identity from fruit-based constituents, and because the relevant VAT entry is inclusive and does not prescribe any minimum fruit content threshold, the product cannot be relegated to the residuary entry merely because it is marketed as “sharbat.”

Summary: The dispute concerned the classification of the beverage concentrate “Sharbat Rooh Afza” for the purpose of VAT under the UPVAT Act during the period 2008–2012. The appellant manufacturer had paid VAT at 4% treating the product as a “fruit drink” falling under Entry 103 of Schedule II Part A, which covers processed or preserved fruits including fruit jams, fruit squash, fruit drinks and fruit juices. The assessing authority, however, treated the product as an unclassified commodity taxable at 12.5% under the residuary entry in Schedule V, reasoning that it contained only about 10% fruit juice and was licensed under food regulations as a “non-fruit syrup.” This classification was affirmed by the appellate authority, the Commercial Tax Tribunal and the Allahabad High Court. Before the Supreme Court, the appellant contended that the product is a fruit-based beverage concentrate containing fruit juices and extracts and that Entry 103 is an inclusive entry covering fruit drink preparations. The Court examined the product composition, statutory scheme and settled principles of fiscal classification, emphasizing that regulatory food classifications cannot determine tax classification unless incorporated by the taxing statute. Applying the common parlance test, the Court held that classification must be based on how the product is understood in trade and commerce. It further applied the essential character test and observed that although sugar syrup constitutes a larger proportion of the composition, it functions merely as a preservative base, whereas the fruit-based constituents impart the beverage its distinctive identity. The Court also noted that similar VAT entries across several States had treated the product as a fruit-based drink taxable at concessional rates, reinforcing the plausibility of the appellant’s interpretation. The Court further held that the burden to justify classification under a residuary entry lies on the Revenue, which had failed to produce trade evidence or market material demonstrating that the product is not understood as a fruit-based beverage preparation.

Decision: The Supreme Court allowed the appeals, set aside the judgments of the Allahabad High Court and the tax authorities, held that “Sharbat Rooh Afza” is classifiable under Entry 103 of Schedule II Part A of the UPVAT Act as a fruit drink taxable at 4%, and directed the respondent authorities to grant consequential relief including refund or adjustment of excess tax collected, with no order as to costs.