What is the story about?
In a ruling that could influence a range of legacy indirect tax disputes, the Supreme Court of India has classified Hamdard’s popular syrup Rooh Afza as a “food drink/fruit drink” under the Uttar Pradesh VAT framework, setting aside an earlier decision of the Allahabad High Court that had treated the product as an unclassified commodity liable to a higher tax.
A bench comprising Justices R. Mahadevan and B. V. Nagarathna allowed appeals filed by Hamdard (Wakf) Laboratories, holding that the product falls within a specific entry for food drinks under the Uttar Pradesh Value Added Tax regime. This means the drink will attract a concessional VAT rate of 4% for the relevant assessment years, instead of the 12.5% applicable to goods classified under the residuary category.
The decision overturns a long-running tax dispute in which authorities had argued that the product, commonly referred to as “sharbat”, did not qualify as a fruit drink and therefore should be taxed as an unclassified item.
The dispute: classification and tax rate
At the heart of the case was how Rooh Afza should be classified under the state’s VAT schedule. Tax authorities had taken the position that the drink was neither fruit juice nor fruit drink, but a syrup that should fall under the residuary category. That interpretation was upheld by the state’s Commercial Tax Tribunal and later by the Allahabad High Court.
Hamdard, however, argued that the product is consumed as a beverage base and should be treated as a food drink eligible for the lower tax rate. The company challenged the decision before the Supreme Court.
Allowing the appeals, the top court concluded that the product is appropriately classifiable under the entry covering food drinks, rejecting the reliance on the residuary category.
Court reiterates principles on tax classification
The ruling reiterates a key principle in indirect tax law: residuary entries should be invoked only when a product cannot reasonably be classified under a specific entry. Courts have historically emphasized that classification must be based on the product’s essential character, its intended use and how it is understood in the market.
By applying these principles, the Supreme Court effectively narrowed the scope for tax authorities to use residuary entries to impose higher tax rates in classification disputes.
Why the ruling matters
Tax experts say the judgment could have implications beyond a single product.
Ikesh Nagpal, Lead – Indirect Tax at AKM Global, said the decision is a reaffirmation of settled law on classification under indirect tax statutes. According to him, the ruling underscores that authorities cannot rely on residuary entries where a product reasonably fits within a defined category.
The judgment is particularly relevant for legacy disputes arising from the pre-GST era, when classification under state VAT schedules often determined whether goods attracted concessional or higher tax rates.
Impact on legacy VAT disputes
Although the goods and services tax (GST) has replaced state VAT for most products since 2017, a large number of disputes from earlier years remain pending before courts and tribunals.
The Supreme Court’s ruling may now provide a reference point for:
Relief for the company and sector
For Hamdard, the verdict brings closure to a dispute that had significant tax implications for past assessment years. More broadly, the decision could reduce litigation risks for companies dealing with similar product categories that fall into grey areas of classification.
Industry observers note that classification disputes have historically been among the most contentious issues in indirect taxation, both under the earlier VAT regime and under GST. The Supreme Court’s reiteration of established principles could therefore shape how authorities approach such cases going forward.
A broader message to tax authorities
Beyond the immediate tax relief, the ruling sends a signal about the need for a principled approach to classification.
Legal experts say the court has once again emphasized that tax statutes must be interpreted based on the structure of the law rather than expansive interpretations that increase tax liability. This could influence how authorities frame classification disputes in the future, particularly in cases involving food and beverage products.
With the judgment, the Supreme Court has not only settled the tax position for Rooh Afza under the relevant VAT years but also reinforced a broader legal framework that could guide courts and tax authorities in similar disputes across jurisdictions.
A bench comprising Justices R. Mahadevan and B. V. Nagarathna allowed appeals filed by Hamdard (Wakf) Laboratories, holding that the product falls within a specific entry for food drinks under the Uttar Pradesh Value Added Tax regime. This means the drink will attract a concessional VAT rate of 4% for the relevant assessment years, instead of the 12.5% applicable to goods classified under the residuary category.
The decision overturns a long-running tax dispute in which authorities had argued that the product, commonly referred to as “sharbat”, did not qualify as a fruit drink and therefore should be taxed as an unclassified item.
The dispute: classification and tax rate
At the heart of the case was how Rooh Afza should be classified under the state’s VAT schedule. Tax authorities had taken the position that the drink was neither fruit juice nor fruit drink, but a syrup that should fall under the residuary category. That interpretation was upheld by the state’s Commercial Tax Tribunal and later by the Allahabad High Court.
Hamdard, however, argued that the product is consumed as a beverage base and should be treated as a food drink eligible for the lower tax rate. The company challenged the decision before the Supreme Court.
Allowing the appeals, the top court concluded that the product is appropriately classifiable under the entry covering food drinks, rejecting the reliance on the residuary category.
Court reiterates principles on tax classification
The ruling reiterates a key principle in indirect tax law: residuary entries should be invoked only when a product cannot reasonably be classified under a specific entry. Courts have historically emphasized that classification must be based on the product’s essential character, its intended use and how it is understood in the market.
By applying these principles, the Supreme Court effectively narrowed the scope for tax authorities to use residuary entries to impose higher tax rates in classification disputes.
Why the ruling matters
Tax experts say the judgment could have implications beyond a single product.
Ikesh Nagpal, Lead – Indirect Tax at AKM Global, said the decision is a reaffirmation of settled law on classification under indirect tax statutes. According to him, the ruling underscores that authorities cannot rely on residuary entries where a product reasonably fits within a defined category.
The judgment is particularly relevant for legacy disputes arising from the pre-GST era, when classification under state VAT schedules often determined whether goods attracted concessional or higher tax rates.
Impact on legacy VAT disputes
Although the goods and services tax (GST) has replaced state VAT for most products since 2017, a large number of disputes from earlier years remain pending before courts and tribunals.
The Supreme Court’s ruling may now provide a reference point for:
- Pending classification disputes involving beverages, syrups, concentrates and food products.
- Interpretation of concessional entries in state VAT laws.
- Limits on the use of residuary categories to levy higher taxes.
- For businesses, particularly in the fast-moving consumer goods (FMCG) sector, the decision reinforces the importance of how products are positioned and understood in the market when it comes to tax classification.
Relief for the company and sector
For Hamdard, the verdict brings closure to a dispute that had significant tax implications for past assessment years. More broadly, the decision could reduce litigation risks for companies dealing with similar product categories that fall into grey areas of classification.
Industry observers note that classification disputes have historically been among the most contentious issues in indirect taxation, both under the earlier VAT regime and under GST. The Supreme Court’s reiteration of established principles could therefore shape how authorities approach such cases going forward.
A broader message to tax authorities
Beyond the immediate tax relief, the ruling sends a signal about the need for a principled approach to classification.
Legal experts say the court has once again emphasized that tax statutes must be interpreted based on the structure of the law rather than expansive interpretations that increase tax liability. This could influence how authorities frame classification disputes in the future, particularly in cases involving food and beverage products.
With the judgment, the Supreme Court has not only settled the tax position for Rooh Afza under the relevant VAT years but also reinforced a broader legal framework that could guide courts and tax authorities in similar disputes across jurisdictions.
