M/S Hamdard (Wakf) Laboratoriesv.Commissioner, Commercial Tax, U.P. Commercial

Leave granted.

2. The present batch of appeals arises out of the common judgment and order dated 02.07.2018 passed by the High Court of Judicature at Allahabad in Sales / Trade Tax Revision Nos. of 2012, 527 of 2015, 383 of 2017, 410 of 2017, 47 of 2018, 528 of 2015, 529 of 2015, 7 of 2018, 8 of 2018, 9 of 2018, 457 of 2012, 458 of 2012, 459 of 2012, 460 of 2012, 461 of 2012, 462 of 2012, 464 of 2012, 465 of 2012, 466 of 2012, 467 of 2012, 468 of 2012 and 469 of 2012, whereby the High Court dismissed the revisions preferred by the appellant and affirmed the order of the Commercial Tax Tribunal, Ghaziabad holding that the appellant’s product “Sharbat Rooh Afza” was liable to Sales Tax / Value Added Tax at the rate of 12.5% under the residuary entry contained in Schedule V of the Uttar Pradesh Value Added Tax Act, 2008.

2.1. The connected appeal has been filed against the judgment and order dated 03.08.2022 passed by the High Court in Sales / Trade Tax Revision Defective No. 38 of 2022, wherein the High Court, following its earlier judgment dated 02.07.2018 in the aforesaid revisions, dismissed the revision and held that the appellant’s product “Sharbat Rooh Afza” does not qualify as a fruit drink and is exigible to Value Added Tax at the rate of 12.5% under the residuary entry.

3. The dispute pertains to the period from 01.01.2008 to 31.03.2012. Since the issue involved in all these appeals is identical and the parties are the same, they were heard analogously and are being disposed of by this common judgment.

4. The appellant is the manufacturer of the product “Sharbat Rooh Afza” which is a non-alcoholic sweetened beverage prepared from invert sugar and blended with fruit juices, vegetable extracts and added flavours. According to the appellant, the fruit juice content in “Rooh Afza” is 10%. During the assessment years in question, the appellant manufactured and sold the said product and paid VAT at the rate of 4% on the sales thereof along with its monthly returns, treating the product as “Fruit Drink” or “Processed Fruit” covered under Entry 103 of Part A of schedule II of the UPVAT Act.

4.1. The Joint Commissioner (Corporate Circle), Commercial Tax, Ghaziabad, however, made provisional assessments holding that “Sharbat Rooh Afza” was an unclassified item taxable at 12.5% under the residuary entry in Schedule V. Aggrieved thereby, the appellant preferred first appeals which were dismissed by the Additional Commercial (Appeals), Commercial Taxes Range, Ghaziabad. The second appeals before the Tribunal also came to be dismissed. Challenging the orders of the Tribunal, the appellant preferred revisions before the High Court. By the impugned judgments, the High Court dismissed the revisions and affirmed the concurrent findings of the authorities below. Hence, the appellant has preferred the present appeals before this court.

5. The learned senior counsel for the appellant submitted that the product “Sharbat Rooh Afza” is a non-alcoholic summer drink which has been consumed by the general public in India for several decades. It is manufactured primarily from pineapple and orange juice blended in a specific formulation along with fruit extracts and herbs such as tarbooz, lemon, keora, gajar, munaqqa, dhania, khurfa, rose, palak, pudina, hara ghia, kasni, sandal sufed, khas hindi, chharila, gul nilofar, and berg gaozaban. The product contains not less than 10% fruit juice.

5.1. It was submitted that pursuant to the mandate of this Court in Hamdard Dawakhana (Wakf), Delhi and another v. Union of India (AIR 1965 SC 1167), the appellant has since 1965 classified the product under the Fruit Products Order, 1955 as a fruit product / sharbat containing the prescribed minimum fruit juice content.

5.2. The learned senior counsel submitted that since the inception of the UPVAT, the appellant, maintaining uniformity in classification, sought to bring the product within Entry 103, namely, “processed or preserved vegetables and fruits including fruit jams, jelly, pickle, fruit squash, paste, fruit drink and fruit juice (whether in sealed containers or otherwise).

5.3. It was urged that Entry 103 is an inclusive and umbrella entry intended to cover all products having a substantial nexus with fruits and fruit-based beverages.

5.4. It was further submitted that the High Court by the impugned judgments, erroneously accepted the contention of the Revenue by applying the common parlance test and holding the product to be a miscellaneous preparation exigible to tax under the residuary entry, also observing that in the absence of the word “sharbat” in Entry 103, the product must necessarily fall outside the said entry. According to the learned senior counsel, the High Court failed to consider that the product was clearly recognised and defined under the relevant statutory instruments governing taxation and food regulation as “fruit drink”.

5.5. In this regard, the learned senior counsel submitted that Supplementary Note 3 to Chapter 21 of the Central Excise Tariff Act, 1985 defines “Sharbat” as a non-alcoholic sweetened beverage or syrup containing not less than 10% fruit juice or flavoured with non-fruit flavours, such as rose, khus or kevara, excluding aerated preparations. This definition is materially in consonance with Rule 2(j) of the Fruit Products Order, 1955. Thus, both the taxing statute and the food regulation framework recognise “Sharbat” as a fruit-based beverage or fruit drink, leaving no scope for treating the product as a miscellaneous or residuary item.

5.6. It was submitted that the High Court failed to correctly apply the common parlance test inasmuch as the Revenue did not discharge the burden cast upon it to establish that the product falls within the residuary entry. It was contended that the material evidence placed on record by the appellant has not been duly considered.

5.7. The learned senior counsel further submitted that the High Court erred in not applying the “essential character test”, which mandates that classification must be determined on the basis of the constituent that imparts the product its essential character. According to the learned senior counsel, it is not mere percentage or predominance of an ingredient; in the present case, sugar syrup or fruit content that is determinative, but the ingredient that lends the product its distinctive and essential character. It was argued that although sugar syrup constitutes approximately 80% of the composition, it merely functions as a preservative medium for the fruit content. The fruit component, though stated to be about 10% in absolute terms, is the ingredient that imparts to the product its identity and essential character. It was further submitted that if the sugar base is excluded for analytical purposes, the fruit content would constitute nearly 50% of the remaining composition.

5.8. Reliance was placed on the decision of this Court in Mauri Yeast India Private Limited v. State of Uttar Pradesh and another ((2008) 5 SCC 680), to contend that where a specific entry is capable of encompassing the product, recourse to the residuary entry is impermissible. It was submitted that the said principle has been reiterated consistently.

5.9. Reference was also made to the Constitution Bench judgment in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and Others ((2018) 9 SCC 1), wherein it was held that taxing statutes must be interpreted strictly and literally, and the other tools of interpretation namely contextual or purposive interpretation cannot be applied nor any resort be made to look to other supporting material, especially in taxation statutes. It was urged that the High Court departed from these settled principles by resorting to assumptions and the common parlance test rather than applying the plain language of Entry 103.

5.10. Reliance was placed on the order dated 11.04.2022 passed by the Delhi VAT Appellate Tribunal in Appeal Nos. 1109-1110 of 2013 [Hamdard Dawakhana (Wakf) v. Commissioner of Trade & Taxes, Delhi] wherein it was held that “Rooh Afza” merits classification as a “fruit drink”. It was submitted that the said order has attained finality.

5.11. The learned senior counsel submitted that “Rooh Afza” is classified as a fruit drink taxable at the lower rate in all other States across the country, except Uttar Pradesh and Haryana.

5.12. In view of the above, it was contended that the impugned judgments are legally unsustainable and liable to be set aside by holding that “Sharbat Rooh Afza” is classifiable under Entry 103 as a fruit drink and not under the residuary entry.

6. Per contra, the learned counsel for the respondent submitted that though the appellant claims the product as “Sharbat” containing at least 10% fruit content, Entry 103 does not expressly include either “Sharbat” or “Fruit Product” within its ambit. Upon consideration, the Assessing Authority rejected the claim of the appellant and held that the product falls under the residuary entry i.e., Entry No. 1 of Schedule V of the UPVAT Act and accordingly levied tax at 12.5%. The said orders were successively affirmed by the Appellate Authority, the Tribunal and the High Court.

6.1. It was submitted that the licence issued to the appellant under the Food Products Order, 1955 authorises it to manufacture “Non-Fruit Syrup / Sharbat”. Clause 11 of the FPO prescribes mandatory conditions regarding the manner in which fruit and non-fruit products are to be described and labelled. Clause 11 (1) stipulates that any beverage not containing at least 25% fruit juice shall not be described as fruit syrup, fruit juice, squash, cordial or crush and must be described as “Non-Fruit Syrup”. Clause 11(2) mandates that such non-fruit beverages and sharbats shall be clearly marked as “Non-Fruit” in a conspicuous manner and prohibits the use of any representation suggesting that the product is a fruit product. It was therefore contended that the appellant holds a licence to manufacture a “Non-Fruit Syrup / Sharbat”; that under the governing statutory regime any beverage containing less than 25% fruit juice must mandatorily be described as “non-fruit”; and that the appellant is statutorily prohibited from marketing the product as a fruit product. In such circumstances, a product which is required by law to be described, labelled and sold as “Non-Fruit” cannot be treated as a “Fruit Drink” for taxation purposes.

6.2. It was submitted that mere presence of 10% fruit content, which has admittedly been further reduced now, does not qualify the product as a fruit drink, particularly when Clause 11(1) of the FPO prescribes a minimum threshold of 25% fruit juice content for a drink to qualify as a “fruit drink”.

6.3. It was urged that the use of the word “shall” in Clause 11 renders the provision mandatory, leaving no discretion to the manufacturer or the authorities, and any deviation from the same would defeat the object of the Fruit Products Order, which is to protect consumers from being misled.

6.4. It is a well-settled principle that in interpreting entries in Excise or Sales Tax statutes, the meaning as understood in common or commercial parlance must prevail, unless the statute provides a specific definition. Reliance in this regard was placed on CST v. Jaswant Singh Charan Singh (1967 SCC OnLine SC 154), Indo International Industries v. CST ((1981) 2 SCC 528), and Deputy Commissioner v G.S. Pai ((1980) 1 SCC 142).

6.5. The learned counsel contended that applying the common parlance test, a beverage such as “Sharbat Rooh Afza”, containing only 10% fruit juice and being marketed and labelled as a non-fruit syrup, cannot be regarded by consumers or traders as a “Fruit Drink”.

6.6. It was submitted that merely because the product contains some quantity of fruit extract, it does not automatically qualify as a fruit drink within the meaning of Entry 103, especially when statutory restrictions prohibit the appellant from marketing it as such.

6.7. According to the learned counsel, all the authorities below have consistently applied the common parlance test and have concurrently held that the product does not fall within Entry 103 but is an unclassified item taxable under the residuary entry.

6.8. It was further submitted that the High Court, while dismissing the revision petitions, recorded concurrent findings of fact and relied upon the Full Bench decision of the Tribunal in Ashutosh Trading Company and earlier judgments concerning M/s.Hamdard (Wakf) Laboratories, Ghaziabad, holding the product to be a sugar-based concentrate or non-fruit syrup falling outside Schedules I to IV and thus correctly classified under Schedule V.

6.9. It was also submitted that under the earlier UP Trade Tax Act, 1948, the product was taxable at 16% and upon enactment of the UPVAT Act, it has been taxed at 12.5% as an unclassified item; hence, there is no sudden or excessive increase in the tax burden as alleged by the appellant.

6.10. Without prejudice to the aforesaid submissions, it was submitted that the appellant has already deposited the entire tax demand at 12.5% under protest; the assessments have attained finality as no further appeals were pursued until the introduction of GST; the collected tax amount has already been passed on to customers; and hence, restitution at this stage would be impracticable.

6.11. For all the aforesaid reasons, it was urged that the appeals lack merit and deserve to be dismissed.

7. We have heard the learned counsel appearing on either side and perused the materials available on record.

8. The core controversy in the present appeals concerns the proper classification of “Sharbat Rooh Afza” under the UPVAT Act, and whether the said product is exigible to tax at the rate of 4% under Entry 103 of Part A of Schedule II or at the higher rate of 12.5% as an unclassified commodity under the residuary entry contained in Schedule V.

9. The dispute pertains to the period from 01.01.2008 to 31.03.2012 and the appellant has paid a sum of Rs. 2,65,94,892/- to the Department, under protest.

10. According to the appellant, the product is a fruit drink consisting mainly of pineapple and orange juice along with fruit extracts and herbs and is therefore classifiable under Entry 103, attracting VAT at 4%. The respondent on the other hand, contends that Entry 103 does not expressly include “Sharbat” or “Fruit Product” within its ambit and hence, the commodity falls under the residuary entry of Schedule V, taxable at 12.5% as an unclassified item.

11. At the outset, it would be appropriate to briefly trace the evolution of the statutory regime governing levy of sales tax / VAT on the commodity in question.

Pre-VAT Regime: UP Trade Tax Act, 1948
Prior to the introduction of VAT, the levy of tax on sale and purchase of goods in Uttar Pradesh was governed by the Uttar Pradesh Trade Tax Act, 1948. The said Act provided for levy of tax either at the first stage of sale/purchase or at the last stage of sale on specified goods. Under Notification No. ST-11-7421/X·10(1)/80-U.P. Act XV /48-Order-81, dt. 26.10.1981, the product fell under entry 63 (Soda water, lemonade and other soft beverages and syrups, squashes, jams and jellies) taxed at 12%.

Subsequently, by Notification No. KA. Nl-2586/Xl-9(7)/97-U.P. Act-15-48-Order-(39)-2005 dated 31.8.2005 (w.e.f. 01.09.2005), the relevant entry covered fruit juices and soft beverages other than aerated soft beverages and syrups, squashes, jams and jellies at 16%.

VAT Regime: UP Value Added Tax Act, 2008
With effect from 01.01.2008, the Uttar Pradesh Value Added Tax Act, 2008 came into force. Under the UPVAT Act, Entry 103 of Schedule II Part A reads as follows:

Schedule / Part	Entry	Description	VAT Rate
Schedule II, Part A	103	Processed or preserved vegetable & fruits including fruit jams, jelly, pickle, fruit squash, paste, fruit drink & fruit juice (whether in sealed containers or otherwise)	4%

The appellant seeks to bring “Sharbat Rooh Afza” within the expression “fruit drink” in the above entry. On the other hand, the respondent classified the product under the residuary entry of Schedule V (taxable at 12.5%).

Post-VAT Regime: GST
Following the Constitution (101st Amendment) Act and the introduction of GST, fruit-based drinks are classifiable under Tariff Heading 2202 (Schedule I, S. No. 150) attracting CGST at 2.5%.

12. Notably, the appellant was granted Licence No. 2782/1 in the year 1972, which has been periodically renewed. The authorisation permitted manufacture of, inter alia, fruits syrups and squashes from purchased fruit juice/ pulp, and non-fruit syrups / sharbat under the regulatory regime then in force.

13. The product “Sharbat Rooh Afza” admittedly contains 10% fruit juice (8% pineapple juice and 2% orange juice) along with invert sugar syrup and certain herbal distillates. The composition is as follows:

Ingredient	Volume (in 100 ml)	Percentage
Invert Sugar Syrup	80 ml	80%
Pineapple Juice	8 ml	8%
Orange Juice	2 ml	2%
Distillate of Keora	3.5 ml	3.5%
Distillate of Citrus Medica	0.8 ml	0.08%
Distillate of Rose Damascena	0.6 ml	0.06%
Permissible Food Colours	0.6 ml	0.06%
Distilled Extract (Dhania, Gajar, Khurfa, Tarbooj, Palak, Pudina, Hara Ghia, Kasni, Munnaqua, Sandal Sufeed, Khas Hindi, Charrila, Gul Nilofar, Bagre Gaozabani)	4.5 ml	4.5%

15. The contention of the appellant that regulatory classification under food safety legislation cannot solely govern interpretation of an undefined fiscal entry under the UPVAT Act merits acceptance.

16. It is trite that a fiscal statute must be interpreted in its own language. Regulatory enactments operate in a distinct domain namely quality control, safety, and licensing. They are neither determinative nor conclusive for purposes of fiscal classification unless a taxing statute expressly incorporates or adopts such definitions.

17. The expression “fruit drink” has not been defined under the UPVAT Act. In the absence of a statutory definition, the settled principle of interpretation mandates application of the common parlance test, namely, how the product is understood in commercial and popular sense by those who deal with it (See: Ramavatar Budhaiprasad v. Assistant Sales Tax Officer (1961) 12 S.T.C. 286; Indo International Industries v. Commissioner of Sales Tax (1981) 7 S.T.C. 359).

18. Further, as clarified in CCE v. Connaught Plaza Restaurant (P) Ltd. ((2012) 13 SCC 639), marketing nomenclature is not decisive; and consumer perception must be established by objective material. What is determinative is how a reasonable purchaser perceives the product and not the terminology employed for marketing purposes.

21. Equally well settled is the principle that where the Revenue seeks to classify a product under a residuary or entry different from that claimed by the assessee, the burden lies squarely upon it (See: Hindustan Ferodo Ltd v. Collector of Central Excise (1997) 2 SCC 677; HPL Chemicals Ltd v. Commissioner of Central Excise (2006) 5 SCC 208).

23. The appellant has also urged the applicability of the essential character test for determining the classification of the subject product as a “fruit drink”. In our considered opinion, this submission merits serious consideration.

25. Applying the aforesaid principle to the present case, though invert sugar syrup constitutes approximately 80% by volume, its function is essentially that of a carrier, sweetening medium and preservative base. It does not determine the commercial or beverage identity of the product. The flavour, aroma and beverage character are derived from the fruit juice component and allied distillates, which together impart to the product its distinctive character as a flavoured sharbat intended for dilution and consumption as a refreshing drink.

27. Entry 103 of Schedule II, Part A of the UPVAT Act is couched in inclusive terms. It covers “processed or preserved vegetables and fruits including fruit jams, jelly, pickle, fruit squash, paste, fruit drink and fruit juice.” The Entry does not prescribe any minimum threshold of fruit content. The use of the expression “including” expands the scope of the entry and indicates the legislative intent to encompass a broad category of fruit-based preparations.

33. The existence of ambiguity in classification, and the plausibility of the appellant’s contention that “Shabat Rooh Afza” is a fruit drink preparation, is further evidenced by the treatment accorded to the very same product under similarly worded VAT entries in other States, such as Delhi, Gujarat, West Bengal, Madhya Pradesh, and Andhra Pradesh, where tax has been levied at the concessional rate of 4%-5%.

State	Relevant Statute and Entry	Description of Item as per relevant Entry	Rate of VAT
New Delhi	Entry 77 of Schedule III, Delhi VAT Act 2004	Processed meat, poultry, fish and processed or preserved vegetables and fruits including fruit jams, jelly, pickle, fruits squash, paste, fruit drink and fruit juice whether in sealed container or otherwise	5%
Gujarat	Entry 48(ii) of Schedule II, Gujarat VAT Act, 2003	Processed fruits, processed vegetables including fruit jams, jelly, pickle, fruit squash, paste, fruit drink and fruit juice	4%
West Bengal	Entry 58B of Schedule C, West Bengal VAT Act, 2003	Processed and preserved vegetables and fruits... including fruit jams, jelly, sauce, pickle, fruit squash, fruit paste, fruit drink and fruit juice...	5%
Madhya Pradesh	Entry 108 of Part II of Schedule II, M.P. VAT Act, 2002	Processed or preserved vegetables and fruits including fruit jams, jelly, pickle, fruit squash, paste, fruit drink and fruit juice, thandai and sharbat	5%
Andhra Pradesh	Entry 107 of Schedule IV, Andhra Pradesh VAT Act, 2005	Preserved fruits, vegetables... Fruits jams, jelly, fruit squash, fruit pulp, fruit juices and fruit drinks	5%

38. Viewed cumulatively:

• The product contains declared fruit juice and derives its essential beverage identity from fruit-based constituents.
• Entry 103 of Schedule II, Part A of the UPVAT Act is illustrative and inclusive in character and does not prescribe any quantitative threshold of fruit content.
• Regulatory or licensing classification cannot control or curtail the interpretation of a fiscal entry.
• The Revenue has failed to discharge the burden of proving that the product falls outside Entry 103 and within the residuary entry.
• Resort to the residuary entry is impermissible where classification under a specific entry is reasonably and sustainably possible.

39. The concurrent findings recorded by the authorities and affirmed by the High Court cannot therefore be regarded as pure findings of fact so as to be insulated from appellate interference. They are conclusions arrived at upon an erroneous application of settled principles governing fiscal classification and are vitiated by a clear misdirection in law. Consequently, such findings warrant interference by this Court.

40. Accordingly, it is held that “Sharbat Rooh Afza” is classifiable under Entry 103 of Schedule II, Part A of the UPVAT Act as a fruit drink / processed fruit product and is exigible to VAT at the concessional rate of 4% during the relevant assessment years. The impugned judgment(s) affirming classification under the residuary entry and levy at 12.5% are set aside.

41. In fine, the appeals are allowed. The respondent authorities shall grant consequential relief including refund or adjustment of excess tax paid in accordance with law. There shall be no order as to costs.

42. Pending application(s), if any, shall stand disposed of.