The Supreme Court of India ruled that Hamdard (Wakf) Laboratories’ “Rooh Afza” qualifies as a fruit drink under the Uttar Pradesh Value Added Tax Act, 2008, attracting 4% VAT instead of 12.5%, citing consistent concessional classification across multiple States.
NEW DELHI: The Supreme Court determined that Hamdard (Wakf) Laboratories’ well-known drink concentrate, “Sharbat Rooh Afza,” should be classified as a fruit drink or processed fruit product for taxation under the Uttar Pradesh Value Added Tax Act, 2008 (UP VAT Act). As a result, it will be subject to a lower VAT rate of 4 percent instead of 12.5 percent.
A Bench led by Justices BV Nagarathna and R Mahadevan ruled that the consistent concessional classification of the product in multiple States bolstered Hamdard’s stance, demonstrating that their interpretation was “neither artificial nor untenable, but a bona fide and commercially recognised interpretation.”
The Court decided that the product falls under Entry 103 of Schedule II of the Act as a fruit drink or processed fruit product, thus taxable at the reduced rate of 4 percent for the relevant assessment year.
Consequently, the Court upheld the company’s appeals and overturned the Allahabad High Court’s ruling, which had classified Rooh Afza as a non-fruit drink.
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The dispute arose regarding the tax classification of “Sharbat Rooh Afza” under the Uttar Pradesh Value Added Tax Act, 2008. The main issue was whether the product should be categorized as a “fruit drink/processed fruit” taxable at 4 percent under Entry 103 of Part A of Schedule II of the UP VAT Act, or as an unclassified commodity taxed at 12.5 percent under the residuary entry in Schedule V.
For the assessment years 2007–08 and 2008–09, Hamdard had been paying VAT at the lower rate of 4 percent for Rooh Afza sales, arguing that it fell under the category covering processed or preserved fruits, fruit squash, fruit drink, and fruit juice.
However, tax authorities disagreed and classified the product as unclassified, subjecting it to higher VAT. Hamdard’s appeals to the first appellate authority and the Commercial Tax Tribunal were unsuccessful, with the tribunal asserting that the product is commonly recognized as “sharbat” rather than a fruit drink.
In July 2018, the Allahabad High Court dismissed several revisions filed by Hamdard, siding with the tribunal’s perspective. The High Court largely relied on the “common parlance test,” stating that consumers asking for fruit juice or fruit drink would not receive Rooh Afza.
Additionally, it referenced regulatory material indicating that the product contains approximately 10 percent fruit juice and is labeled as a “non-fruit syrup/sharbat,” supporting the conclusion that it does not meet the criteria for classification as a fruit drink, fruit juice, or processed fruit under the VAT schedules.
Hamdard subsequently appealed to the Supreme Court, bringing the long-standing classification dispute before the apex court.
The Supreme Court dismissed the reasoning of the tax authorities and the High Court, finding the concurrent findings subject to appellate review. It concluded that those findings were flawed due to a clear legal misdirection and relied on an incorrect application of established fiscal classification principles.
Hamdard’s legal representation included Senior Advocate Arvind Datar along with a team from King Stubb & Kasiva: Aditya Bhattachrya (Partner), Vipin Upadhyay (Partner), Simran Tandon (Associate Partner), Ritwik Tyagi (Senior Associate), and Akriti Sharma (Associate). The Tax Department was represented by advocate Bhakti Vardhan Singh.
A detailed judgment is expected to be released soon.
Case Title: Hamdard (Wakf) Labs Vs Commissioner of Commercial Tax
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