In a significant ruling on tax classification of food products, the Supreme Court of India has held that the iconic beverage Rooh Afza manufactured by Hamdard Laboratories (Wakf) must be treated as a “fruit drink/processed fruit product” under the Uttar Pradesh Value Added Tax Act, 2008. The Court ruled that the product is liable to 4% VAT instead of the higher 12.5% tax applied under the residuary entry, thereby overturning the earlier judgment of the Allahabad High Court.
The decision resolves a long-standing tax dispute between the Uttar Pradesh tax authorities and Hamdard concerning the proper classification of the popular sharbat during the assessment period 1 January 2008 to 31 March 2012.
The controversy centred on whether “Sharbat Rooh Afza” fell within Entry 103 of Schedule II (Part A) of the UP VAT law, which covers processed or preserved fruits and vegetables including fruit drinks and fruit juices, attracting a concessional 4% VAT.
Hamdard consistently treated the beverage as a fruit drink and paid tax at this lower rate. However, the commercial tax department disagreed and classified the product under the residuary entry in Schedule V, applicable to goods not specifically listed elsewhere, which attracted 12.5% VAT.
The assessing authority’s decision was upheld by appellate authorities and later by the Allahabad High Court in 2022, prompting Hamdard to approach the Supreme Court.
During the proceedings, the Court examined the composition and commercial character of the product. Evidence showed that Rooh Afza is a non-alcoholic syrup prepared from invert sugar syrup blended with fruit juices, herbal extracts and flavours. The formulation includes approximately 80% invert sugar syrup, 8% pineapple juice and 2% orange juice, along with other extracts.
While the tax department argued that the relatively low fruit content meant the beverage could not qualify as a fruit drink, Hamdard contended that fruit ingredients gave the product its distinctive beverage identity and that it is commonly consumed as a fruit-based sharbat.
A bench comprising Justices Justice B. V. Nagarathna and Justice R. Mahadevan allowed Hamdard’s appeal and emphasised several key principles of tax interpretation. The Court noted that the term “fruit drink” is not defined in the UP VAT Act. Therefore, classification must be determined according to common commercial understanding, rather than technical definitions or labels.
The Court rejected the argument that the predominance of sugar syrup determines classification. Instead, it held that the ingredient conferring the essential beverage character should guide the classification.
Authorities had relied on the Fruit Products Order, 1955, which prescribes certain fruit-content thresholds. The Court clarified that regulatory food standards do not automatically control tax classification, unless the taxing statute explicitly incorporates them.
Reiterating established jurisprudence, the Court observed that the residuary category should be used only when goods cannot reasonably fall under a specific entry.
On applying these principles, the Court concluded that Rooh Afza reasonably answers the description of a fruit-based beverage preparation intended for dilution, which fits within Entry 103 covering fruit drinks and processed fruit products.
The Court accordingly set aside the Allahabad High Court judgment and orders of tax authorities and held that the product is taxable at 4% VAT for the relevant period. Also, the Hon’ble Apex Court directed the authorities to grant consequential relief, including refund or adjustment of excess tax paid.
The ruling carries broader implications for classification disputes in indirect taxation, particularly in cases involving composite food and beverage products. By reaffirming the common parlance and essential character tests, the Court has clarified that tax classification must reflect how goods are understood in trade and consumption, rather than rigid ingredient percentages or regulatory definitions.
For manufacturers and tax authorities alike, the decision underscores that residuary tax entries should not be invoked where a reasonable interpretation brings the product within a specific statutory category.
The judgment in Hamdard (Wakf) Laboratories v. Commissioner, Commercial Tax thus brings closure to a dispute spanning more than a decade while reaffirming foundational principles governing classification under fiscal statutes.
