Gauhati High Court Rules Fizzy Fruit Juice as ‘Fruit-Based Drink’ Taxable at 12% GST

Background

The Gauhati High Court has ruled that fizzy fruit juices should be classified as “fruit-based drinks” rather than “aerated beverages,” thereby attracting a Goods and Services Tax (GST) of 12% instead of 28%. The decision was issued in response to a petition filed by a beverage company challenging the classification of their fruit-based fizzy drinks under the higher tax bracket meant for aerated soft drinks.

The dispute arose when tax authorities imposed a 28% GST along with an additional 12% compensation cess on the company’s fruit-infused carbonated beverages. The petitioner argued that their products contained a substantial percentage of fruit juice or pulp and should be categorized under the lower tax rate applicable to fruit-based drinks.

Court’s Rationale

The Gauhati High Court examined various aspects before concluding that such drinks should be taxed at 12% GST:

1. Composition of the Beverage

• The court reviewed the ingredients of the fizzy fruit juice and found that it contained a significant proportion of fruit pulp or juice.
• It determined that beverages primarily derived from fruits should be classified under the GST slab for “fruit-based drinks” rather than artificially flavored aerated drinks.

1. Distinction Between Fruit-Based Drinks and Aerated Beverages

• The court noted that aerated beverages, which include products like colas and sodas, are typically classified under the highest tax bracket of 28% due to their artificial composition.
• However, beverages containing natural fruit extracts are recognized differently under GST law, making them eligible for a lower tax rate.

1. Interpretation of GST Classification Rules

• The court referred to the Harmonized System of Nomenclature (HSN) codes, which guide the classification of goods for taxation purposes.
• It emphasized that tax authorities must consider the primary ingredient and intended classification of a product rather than its carbonation alone.

1. Impact on Industry and Consumers

• The judgment acknowledged that an excessively high tax rate on fruit-based drinks could discourage their production and affect pricing for consumers.
• It suggested that placing such drinks under the 28% tax category could create an unfair burden on businesses promoting natural fruit-based alternatives.

Existing GST Framework and Government’s Position

The GST structure currently differentiates between various types of beverages:

• Fruit-based drinks with natural pulp/juice – Taxed at 12% GST (HSN Code 2202 99).
• Aerated beverages (colas, sodas, artificially flavored drinks) – Taxed at 28% GST + 12% compensation cess (HSN Code 2202 10).
• Milk-based or dairy-based beverages – Taxed at 5% or exempted under specific conditions.

The tax authorities had initially argued that the presence of carbonation placed the drinks in the “aerated beverage” category. However, the court clarified that the classification must be based on the primary ingredient and the beverage’s nature rather than the presence of fizz alone.

Implications of the Judgment

The High Court’s ruling has significant implications:

• For Beverage Manufacturers – The decision provides relief to companies producing fruit-based fizzy drinks, allowing them to benefit from lower GST rates and potentially reducing product prices.
• For GST Authorities – Tax authorities may need to revise their approach to classifying beverages, ensuring fair differentiation between artificially flavored drinks and natural fruit-based products.
• For Consumers – The ruling could lead to reduced prices for fruit-based fizzy drinks, making them more accessible and affordable.

Conclusion

The Gauhati High Court’s judgment underscores the importance of correctly classifying beverages under GST law based on their composition rather than carbonation alone. By ruling in favor of a 12% GST rate for fizzy fruit juices, the court has provided clarity to the industry while ensuring that tax policies do not unfairly burden businesses promoting natural fruit-based drinks. The decision may influence similar disputes across India, prompting a re-evaluation of GST classifications for various beverage categories.