Gauhati High Court Rules Carbonated Fruit Juice Drinks Taxable at 12% GST Instead of 28%

In a landmark decision, the Gauhati High Court has ruled that carbonated fruit juice drinks are to be taxed at a 12% Goods and Services Tax (GST) rate, rather than the higher 28% rate previously imposed by tax authorities. This ruling is expected to make these beverages more affordable for consumers and provides significant relief to manufacturers facing high taxation.

The case centered around X’SS Beverage, a manufacturer of carbonated juice drinks, which had been contesting a tax demand that included penalties and interest. GST officials had argued that since the drinks contained carbonated water, they should be taxed at the higher rate applicable to soft drinks. However, X’SS Beverage maintained that fruit juice was the predominant ingredient, giving the drinks their essential character and making them eligible for the lower tax rate.

The High Court referred to the Rules for Interpretation of the Customs Tariff Act, 1975, which state that if a product does not fit neatly into a single category, it should be classified based on its essential nature. The court also cited scientific principles and past judicial rulings, including a case involving Parle Agro’s 'Appy Fizz', to support its decision. The bench of Justice Soumitra Saikia emphasized that carbonated juices cannot be classified merely as 'carbonated water', and that ready-to-serve fruit drinks and carbonated fruit drinks should be taxed at the 12% GST rate.

Legal experts have noted that this judgment will serve as an important precedent. Harpreet Singh, Partner, Indirect Tax, Deloitte-India, commented that the High Court rightly considered all key aspects such as the ingredients, their proportion and role in manufacture, common parlance of the product, how the products are marketed, and their labeling to decide the classification and consequently a lower GST rate. With this ruling, fruit pulp and juice-based carbonated drinks now enjoy a tax advantage, making them more affordable for consumers and providing relief to manufacturers battling high taxation.

This decision underscores the importance of accurately classifying products for taxation purposes and highlights the necessity of considering a product's essential character in such determinations. It also reinforces the principle that tax authorities must carefully evaluate the composition and marketing of products before assigning tax rates, ensuring that taxation is fair and reflective of the product's true nature.