Fizzy fruit juice is 'fruit-based drink' taxable at 12% not 28% GST: Gauhati High Court

The Gauhati High Court recently ruled that carbonated fruit drinks sold by by Guwahati-based manufacturer XSS Beverages fall under the category of "fruit pulp or fruit juice based drinks" which is subject to a goods and services tax (GST) of 12 per cent, and not other tariff categories such as "aerated water" which carry a higher 28 per cent GST. .Justice Soumitra Saikia reasoned that the mere presence of carbonated water in such fizzy fruit juices does not make a fruit-based drink 'aerated water' if it has over 10 per cent of fruit content. The case arose when the Revenue Department initiated proceedings against XSS Beverages on the ground that it had misclassified its fizzy drinks under tariff item 2202 99 20 (fruit pulp or fruit juice-based drinks) to reduce its GST liability to 12 per cent. The Revenue Department maintained that carbonated drinks, such as those of XSS Beverages (petitioner), should be taxed under tariff heading 2202 10 90 (aerated waters), which attracted a 28 per cent GST..Justice Sakia, however, disagreed. The judge held that the beverages produced by the petitioner had more than 10 per cent of fruit juice content, which complied with standards set under the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011 for classifying a product as a fruit-based drink.He emphasized that the fruit juice content gave these beverages with their essential character, making them distinct from aerated waters."The sole basis for rejecting the assessee’s classification under Sub-head 2202 99 is that these subject products contained carbonated water. However, such conclusions by the Revenue that merely because it contains carbonated water, the subject products are to be treated under classification ‘water’ or ‘aerated water’ is completely fallacious," the High Court ruled. .The March 4 judgment relied heavily on precedents set by the Supreme Court in other similar cases, such as those concerning APPY FIZZ (Parle Agro Pvt. Ltd. vs Commissioner of Commercial Taxes), wherein it was held that beverages containing fruit juice above specified limits would be classified as fruit juice-based drinks, even if they contain carbonated water..The Court also rejected the Revenue Department's argument that XSS Beverages could not rely on laboratory tests or standards of the Food Safety and Standards Authority of India (FSSAI) to determine the nature of their products. The Court clarified that such tests were valid in determining a product's classification under GST."The Revenue has also not suggested any alternative methods or means by which such test results were undertaken leading to contradictory findings to that of the test results conducted under the FSSAI," the Court added. .The Court proceeded to quash the show-cause notice issued by the Revenue authorities against the petitioner, holding that XSS Beverages had correctly classified its products under tariff item 2202 99 20, which sets a 12 per cent GST for fruit-based drinks. The Court also dismissed the Revenue's claim that XSS Beverages was liable to pay 12 per cent compensation cess and 14 per cent tax on its products according to two 2021 notifications applicable to carbonated beverages with fruit juice.The Court explained that the present case concerned tax assessment years that preceded the 2021 notification."The (notification) was made effective from 01.10.2021. The tax @ 14% and Cess @ 12% cannot be imposed on the said items for the periods prior to 01.10.2021 ... The periods involved in the present writ petitions are prior to the issuance of the said Notifications re-classifying the items. These Notifications therefore can only have effect from the date it is made effective and prospectively. There is no justification by the Revenue to make these notifications applicable retrospectively," the Court said. .The petitioner company was represented by Senior Advocate A Saraf assisted by advocate PK Bora.The Revenue Department was represented by Standing Counsel for Finance and Taxation for Assam B Gogoi..[Read Judgement]