The Court clarified that these drinks do not fall under the “aerated water” category, which attracts a higher 28% GST rate.
Gauhati: The Gauhati High Court decided that the carbonated fruit drinks manufactured by Guwahati-based XSS Beverages fall under the category of “fruit pulp or fruit juice-based drinks” and are subject to a 12% Goods and Services Tax (GST).
The Court clarified that these drinks do not fall under the “aerated water” category, which attracts a higher 28% GST rate.
Justice Soumitra Saikia, who delivered the judgment, emphasized that the presence of carbonated water in the drinks does not classify them as ‘aerated water‘ if they contain over 10% fruit content.
“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 Court stated.
Background
The case began when the Revenue Department accused XSS Beverages of misclassifying its fizzy fruit drinks under tariff item 2202 99 20 (fruit pulp or fruit juice-based drinks) to benefit from the lower 12% GST rate. The Department argued that these drinks should be classified under tariff heading 2202 10 90 (aerated waters), which attracts a 28% GST.
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However, Justice Saikia disagreed with this view. He noted that the beverages produced by XSS Beverages contained more than 10% fruit juice content, meeting the standards set under the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011.
He highlighted that the fruit juice content gave the drinks their essential character, differentiating them from regular aerated waters.
The Court referred to previous rulings by the Supreme Court, including the case concerning APPY FIZZ (Parle Agro Pvt. Ltd. vs Commissioner of Commercial Taxes). The Supreme Court had earlier ruled that beverages with fruit juice content above specified limits would be classified as fruit juice-based drinks, even if they contained carbonated water.
The Revenue Department also argued that XSS Beverages should not rely on laboratory tests or standards from the Food Safety and Standards Authority of India (FSSAI) to determine the nature of their products. However, the High Court rejected this argument.
“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 noted.
The Court affirmed that laboratory tests were valid in determining a product’s classification under GST.
Consequently, the High Court quashed the show-cause notice issued by the Revenue authorities. The Court held that XSS Beverages had correctly classified its products under tariff item 2202 99 20, which carries a 12% GST for fruit-based drinks.
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The Court also dismissed the Revenue Department’s claim that XSS Beverages was liable to pay a 12% compensation cess and 14% tax based on two notifications issued in 2021. The Court clarified that these notifications were applicable only from October 1, 2021, and could not be applied retrospectively.
“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 clarified.
XSS Beverages was represented by Senior Advocate A Saraf, assisted by advocate PK Bora. The Revenue Department was represented by B Gogoi, the Standing Counsel for Finance and Taxation for Assam.
Case Title: X’S Beverage CO. v. The State of Assam
