In a significant ruling for the beverage industry, the Gauhati High Court has determined that carbonated fruit drinks with over 10% fruit content cannot be taxed as aerated water. Instead, they qualify as “fruit pulp or fruit juice-based drinks,” attracting a lower Goods and Services Tax (GST) of 12% instead of the hefty 28% applied to aerated beverages.
The dispute centered around XSS Beverages, a Guwahati-based manufacturer, which the Revenue Department accused of misclassifying its fizzy fruit drinks under a tariff that benefited from the lower GST rate. The department argued that any carbonated drink should fall under the “aerated water” category, subjecting it to the higher tax bracket.
However, the court disagreed. Justice Soumitra Saikia ruled that the defining characteristic of the beverage was its fruit juice content—not its carbonation. Since the drinks contained more than 10% fruit juice, they aligned with classification standards set by the Food Safety and Standards (Food Products Standards and Food Additives) Regulations, 2011. The ruling drew heavily from previous Supreme Court decisions, including a case involving APPY FIZZ, which held that fruit-based carbonated drinks should not be lumped in with standard soft drinks.
“The Revenue’s assumption that the mere presence of carbonation transforms the product into aerated water is flawed,” the court observed. It went on to reject arguments that laboratory tests or Food Safety and Standards Authority of India (FSSAI) guidelines were irrelevant in determining GST classifications.
Further, the court dismissed the Revenue Department’s attempt to impose additional taxes based on 2021 notifications concerning carbonated fruit beverages. Since the assessment years in question predated these notifications, the court ruled they could not be applied retroactively.
With this judgment, the show-cause notice against XSS Beverages was quashed, affirming that its classification under the 12% GST bracket was correct. The decision provides clarity on how carbonated fruit-based drinks should be taxed, setting a precedent that could impact similar products across the industry.