Supreme Court classifies Rooh Afza as ‘fruit drink’ amid higher tax bracket row

Since Rooh Afza contains only 10%, it was described for licensing purposes as a “non-fruit syrup containing 10% fruit juice”.

For generations of Indians, a glass of ruby-red Rooh Afza has meant summer relief — stirred into cold water, milk or desserts, and served at iftar tables and family gatherings alike. On Wednesday, the Supreme Court settled a long-running tax battle over the iconic drink, ruling that Sharbat Rooh Afza cannot be pushed into a higher tax bracket simply because it is marketed as a “sharbat.”

The revenue authorities had relied heavily on a clarification issued under food safety regulations stating that a “fruit syrup” must contain at least 25% fruit juice. (ANI)

Noting that the drink derives its beverage identity from fruit-based ingredients and is intended for dilution and consumption, a bench of justices BV Nagarathna and R Mahadevan held that Rooh Afza qualifies as a “fruit drink” under the taxation law.

The court allowed the batch of appeals filed by Hamdard (Wakf) Laboratories, the manufacturer of Rooh Afza, the court set aside 2018 judgments of the Allahabad High Court and tax authorities which had classified the product as an “unclassified” item taxable at 12.5% under the residuary entry of the Uttar Pradesh Value Added Tax (UPVAT) Act.

Instead, the bench held that Rooh Afza is classifiable under Entry 103 of Schedule II (Part A) of the UPVAT Act as a “fruit drink/processed fruit product”, attracting a concessional VAT rate of 4% during the relevant assessment period between January 1, 2008 and March 31, 2012.

The revenue authorities had relied heavily on a clarification issued under food safety regulations stating that a “fruit syrup” must contain at least 25% fruit juice. Since Rooh Afza contains only 10%, it was described for licensing purposes as a “non-fruit syrup containing 10% fruit juice”. On that basis, the department argued that it could not be treated as a fruit drink for tax purposes.

Rejecting this reasoning, the Supreme Court made it clear that regulatory classification under food safety law cannot control fiscal interpretation unless the taxing statute expressly adopts such definitions.

“It is trite that a fiscal statute must be interpreted in its own language,” said the bench, stressing that food regulation norms operate in a distinct domain of quality control and safety and are not determinative for tax classification.

Since the term “fruit drink” was not defined in the UPVAT Act, the court applied the “common parlance test” — how the product is understood in commercial and popular sense. It noted that classification must depend on tangible factors such as composition, label, character and intended use.

The bench also applied the “essential character test”, holding that although invert sugar syrup constitutes around 80% of the volume, it merely acts as a carrier and preservative. The distinctive flavour, aroma and beverage identity are derived from fruit juice and allied distillates.

“Mechanical reliance upon quantitative predominance would be misplaced,” underlined the court, adding that classification must follow the component that confers the product its essential beverage character.

Notably, the court stressed that residuary entries can be invoked only when goods cannot reasonably be brought under any specific entry and that the burden lies squarely on the revenue to prove that classification under a specific entry is not possible.

In this case, the court noted, the department produced no trade enquiries, consumer surveys or market evidence to demonstrate that Rooh Afza is not understood commercially as a fruit-based beverage preparation. Reliance solely on nomenclature and licensing norms was insufficient, it held.

The bench further pointed out that similarly worded VAT entries in several 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 VAT classification is a state subject and not binding across jurisdictions, such uniformity carries evidentiary value in assessing commercial understanding, the court said.

“Where two plausible views exist, the interpretation favourable to the assessee must prevail,” held the bench, directing the Uttar Pradesh authorities to grant consequential relief, including refund or adjustment of excess tax paid under protest — amounting to over ₹26 million, in accordance with law.

To be sure, the ruling is confined to the VAT regime that existed prior to the rollout of the Goods and Services Tax (GST). Under GST, fruit-based drinks fall under Tariff Heading 2202 and attract 2.5% tax.