Supreme Court rejects higher tax bracket for Rooh Afza, terms it ‘fruit drink’

New Delhi: The Supreme Court has ruled that Rooh Afza, the popular syrup manufactured by Hamdard (Wakf) Laboratories, should be classified as a fruit drink for the purposes of value-added tax, bringing an end to a long-running dispute with Uttar Pradesh tax authorities.

According to news reports, a bench of Justices BV Nagarathna and R Mahadevan held that the product could not be placed in a higher tax bracket merely because it was marketed as a “sharbat”.

The court concluded that Rooh Afza derives its identity as a beverage from fruit-based ingredients and is intended to be diluted before consumption, bringing it within the scope of a fruit drink under the Uttar Pradesh Value Added Tax (UPVAT) Act.

The judgment allowed appeals filed by Hamdard and set aside a 2018 ruling of the Allahabad High Court, which had upheld the classification of the product as an “unclassified” item taxable at 12.5% under the residuary entry of the UPVAT Act.

Instead, the Supreme Court said the drink falls under Entry 103 of Schedule II (Part A) as a “fruit drink/processed fruit product”, attracting a concessional VAT rate of 4% for the assessment period between January 1, 2008 and March 31, 2012.

At issue was whether Rooh Afza, which contains 10% fruit juice, 8% pineapple and 2% orange, along with invert sugar syrup and herbal distillates, could legally qualify as a fruit drink. Tax authorities had argued that under food safety regulations, a fruit syrup must contain at least 25% fruit juice.

Because Rooh Afza contains only 10%, it had been described for licensing purposes as a non-fruit syrup containing fruit juice, and therefore, in their view, should not be taxed as a fruit drink.

The Supreme Court rejected that argument. According to news reports, the bench clarified that definitions used under food safety laws cannot automatically determine tax treatment unless the taxing statute expressly adopts them. The judges observed that fiscal legislation must be interpreted on its own terms and that regulatory standards relating to quality and safety operate in a separate domain.

Since the term “fruit drink” is not defined in the UPVAT Act, the court applied what is known as the common parlance test, examining how the product is understood commercially and by consumers. It said classification should be based on factors such as composition, labelling, character and intended use.

The bench also referred to the essential character test. Although invert sugar syrup makes up a substantial proportion of the product, the court found that it functions mainly as a carrier and preservative.

The flavour and beverage identity it held are derived from fruit juice and related distillates. Relying purely on the percentage composition, the court indicated, would be an overly mechanical approach; instead, the determining factor should be the component that gives the product its essential character.

The judges further underlined that residuary tax entries should be invoked only when goods cannot reasonably be classified under a specific entry, and that the burden of proof rests with the revenue authorities. In this case, the department had not produced market evidence, trade enquiries or consumer surveys to show that Rooh Afza is not regarded as a fruit-based beverage in commercial practice.

The court also noted that similarly worded VAT provisions in states including Delhi, Gujarat, West Bengal, Madhya Pradesh and Andhra Pradesh had treated the product as a fruit-based beverage eligible for concessional tax rates of 4–5%. While state VAT classifications are not binding on one another, such consistency carries evidentiary value in assessing common commercial understanding, the bench observed.

Where two reasonable interpretations are possible, the court stated, the view favourable to the taxpayer should prevail. It directed the Uttar Pradesh authorities to grant consequential relief, including refund or adjustment of excess tax paid under protest, reported to exceed Rs 26 million.

The ruling applies to the pre-Goods and Services Tax regime. Under GST, fruit-based drinks are classified under Tariff Heading 2202 and attract 2.5% tax.