Carbonated Fruit Drinks Come Under Head “Fruit Pulp Or Fruit Based Drink” As Per GST Act: Gauhati High Court

The Gauhati High Court held that carbonated fruit drinks come under the head of “Fruit Pulp or Fruit Based Drink” as per the Assam Goods and Services Tax Act, 2017 (Assam GST Act).

The Court held thus in a batch of Writ Petitions filed by a firm namely X'SS BEVERAGE CO., which was engaged in the business of manufacture and sale of carbonated fruit drinks and ready to serve fruit drinks.

A Single Bench of Justice Soumitra Saikia observed, “Mere presence of carbon dioxide or carbonated water cannot be treated to classify the subject items under water or carbonated water. Therefore, the classification sought to be made by the Revenue cannot be accepted. The classifications by the petitioner of the items under the subject head Fruit Pulp or Fruit Based Drink appear to be correct to this Court.”

The Bench reiterated that Tariff Items are to be classified under Items to which it is most akin to and, therefore, where the subject product contains soluble solids and fruit content as per the report of the State Food Laboratory, it cannot be said to be akin to water, mineral water or aerated water.

Senior Advocate A. Saraf appeared for the Petitioner while Standing Counsel B. Gogoi appeared for the Respondents.

Brief Facts

The Petitioner firm was engaged in the business of manufacture and sale of carbonated fruit drinks and ready to serve fruit drinks. It was a partnership firm which was manufacturing and selling as many as 10 different products. It was contended that these products were classifiable under Tariff Item 2202 99 20 of the Customs Tariff Act, 1975 (CTA) and were specified as Serial No. 48 under Schedule-II as “fruit pulp or fruit juice based drinks” in Notification No.1 of 2017 – Integrated Tax (Rate) and were taxable at the rate of 12%. According to the Petitioner, carbonated beverages with fruit drinks should not have less than 10% fruit juice (5% in case of lime or lemon) and total soluble solids not less than 10% as per Regulation 2.3.30 of Food Safety and Standards (Food Products Standards and Food Additives) Regulation, 2011. It was submitted that carbonated fruit drinks qualify as fruit beverages or fruit drinks.

It was further submitted that the Petitioner’s products are regularly tested at the State Public Health Laboratory, Government of Assam where sample products are sent for testing. Based on this, the Petitioner had filed GST returns regularly upon payment of appropriate taxes at the rate of 12%. In September 2021, the Department initiated an investigation in respect of the classification adopted by the Petitioner for its goods. Pursuant to the search and seizure of its products, an Order was issued alleging that the goods manufactured and supplied by the Petitioner contains carbonated water as an ingredient and hence, such items were classifiable under Tariff Sub-Heading 2202 10 90 and it attracts GST at the rate of 28% and compensation cess at the rate of 12%. Show cause notices (SCNs) were sent to the Petitioner and then the Joint Commissioner of State Tax rejected their claims and imposed tax interest along with a penalty. Being aggrieved, the Petitioner was before the High Court.

Reasoning

The High Court after hearing the contentions of the counsel, noted, “The sole basis for rejecting the assessee’s classification under Sub-head 2202 99 is that these subject products contained carbonated water. However, such conclusions by the Revenue that merely because it contains carbonated water, the subject products are to be treated under classification ‘water’ or ‘aerated water’ is completely fallacious.”

The Court added that the Laboratory Reports as well as the Labels on the fruit products which were placed before the Revenue Authorities clearly reveal the contents of the subject product.

“These products being sold as drinks and not as powders to be solved in water or in any other solid or semi solid form, must necessarily contained an element of water or carbonated or aerated water. That by itself cannot classify the subject product under the sub-head as have been sought to be done by the Revenue”, it said.

Furthermore, the Court observed that the burden is on the department to prove the classification of the subject items and although, the results of the State Food Laboratory have been discarded by the Revenue, no alternative test reports or methods for appropriate classification of the subject products have been placed before the Court.

“Where an established laboratory for food testing under the FSSAI has in it’s test reports indicated presence of food content and soluble solids in the report, and these reports not having been contradicted by the Revenue by referring or relying on other reliable test reports, the contention of the Revenue that these reports cannot be reliable, therefore cannot be accepted as the same are not supported by any sufficient reason”, it remarked.

The Court, therefore, held that the invocation of powers by the Revenue under Section 74 was uncalled for and the same is unwarranted and hence, the proposal for imposition of penalty upon the Petitioner is not sustainable in law.

“For the reasons given in the foregoing paragraphs, if the proposed demand is unsustainable in law, no penalty is imposable on the petitioner. Under such circumstances, it is held that where the demand has been found to be unsustainable on the ground that there was no wilful and deliberate suppression or mis-statement or evasion or payment of tax, the question of imposition of penalty must also failed”, it added.

The Court also observed that where the primary demand has been held to be unsustainable, there is no basis for levy of any interest and, therefore, the levy of interest under Section 50 of the CGST Act is to be set aside.

“If the subject items dealt with by the petitioners are classifiable under entry 2202 10 10 i.e. under the description “aerated waters” as sought to be classified by the Revenue, there would have been no necessity of inserting a separate item in the schedule and also by inserting by new entry of Cess under the Assam GST Act, 2017. In this context, the reference to the Judgment of Parle Agro (P) Ltd (Supra) is very relevant”, it concluded.

Accordingly, the High Court allowed the Writ Petitions and quashed the impugned Order and SCNs.

Cause Title- X'SS BEVERAGE CO. v. The State of Assam & Ors. (Case Number: W.P(C) NO. 5347/2022)

Appearance:

Petitioner: Senior Advocate A. Saraf and Advocate P.K. Bora.

Respondents: Standing Counsel B. Gogoi

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