The Supreme Court has ruled that Hamdard's Sharbat Rooh Afza is a "fruit drink preparation", which should invite a 4 per cent tax and not 12.5 per cent as charged by the Uttar Pradesh government under the category of non-fruit drinks.
The apex court rejected the state government's argument that merely because the product contained some fruit extract, it does not automatically qualify as a fruit drink under Entry 103 of Schedule II, Part A of the Uttar Pradesh Value Added Tax (UPVAT) Act.
"In the present case, the Revenue has produced no trade enquiry, consumer survey, market evidence or documentary material to demonstrate that the product is not understood in commercial circles as a fruit-based beverage preparation," a bench of Justices B.V. Nagarathna and R. Mahadevan said in a judgment.
"Reliance has been placed primarily on licensing norms and the nomenclature 'sharbat'. Such material, without more, cannot substitute the evidentiary burden required to displace classification under a specific entry. Accordingly, it must be held that the Revenue has failed to discharge the burden cast upon it in law,” the bench added.
The apex court passed the ruling while allowing an appeal filed by Hamdard Laboratories challenging the concurrent findings of the Uttar Pradesh tax tribunal and Allahabad High Court, which had held that the company was liable to pay 12.5 per cent tax.
The bench noted that in states such as Bengal, Delhi and Gujarat, the product was taxed at 4 per cent.
"The existence of ambiguity in classification, and the plausibility of the appellant’s contention that ‘Sharbat Rooh Afza’ is a fruit drink preparation, is further evidenced by the treatment accorded to the very same product under similarly worded VAT entries in other states," Justice Mahadevan, who authored the judgment, observed.
"Under the VAT statutes of Delhi, Gujarat, Bengal, Madhya Pradesh and Andhra Pradesh, entries covering processed or preserved fruits, including 'fruit drink' and ‘fruit juice’, have been applied to the impugned product and tax has been levied at the concessional rate of 4-5 per cent.
"The material placed on record, including tax invoices evidencing payment of VAT at 5 per cent in several states, namely Delhi, Gujarat, Bengal, Madhya Pradesh and Andhra Pradesh, demonstrates that the trade and tax authorities in those jurisdictions have consistently treated the product as falling within fruit-based beverage entries,” Justice Mahadevan added.
The bench held that Sharbat Rooh Afza was classifiable as a fruit drink/processed fruit product under Entry 103 of Schedule II, Part A of the UPVAT Act and was eligible for 4 per cent tax during the relevant assessment years.
"The impugned judgment(s) affirming classification under the residuary entry and levy at 12.5 per cent are set aside,” it said.