Supreme Court gave relief to Carbonated Fruit Drinks suppliers in this summer season

The classification of Carbonated Fruit Drinks has been an area of dispute since the introduction of GST regime. This feels little strange, as the issue of classification of such drinks had already been settled by the Supreme Court¹, Larger Bench of CESTAT² etc. in the erstwhile regime.

Due to huge rate difference and a different view of some jurisdictional authorities, many manufacturers cum suppliers sought advance ruling on the issue of classification of these Carbonated Fruit Drinks.

Mostly, all the Authorities of Advance Ruling in different states³ observed that the said drinks are classifiable under sub-heading 2202 10 as aerated waters, containing added sugar or other sweetening matter or flavoured. Accordingly, these attract GST @ 28% and Compensation Cess of 12% as against 12% for tariff item 2202 90 20 applicable on fruit juice based drinks. This view was upheld by the Appellate Authority of Advance Ruling. Needless to mention, on the basis of these advance rulings, nation-wide investigations have culminated into issuance of show cause notices. The premise of such rulings/investigations/proceedings is that quantity of 2.5% lime juice or 5% other fruit juice in the drinks is miniscule as compared to water and sugar. These drinks are bought and sold for their carbonation.

One such assessee which also faced similar issue was Anutham Exim, which imported Carbonated Fruit Drinks and paid 5% IGST at the time of import. This 5% IGST was disputed by the customs authorities. The matter reached CESTAT, Kolkata⁴, wherein the case of Appellant department was based on composition based essential character⁵. According to Appellant department, the main ingredient is carbonated water and therefore, these drinks cannot be called fruit pulp or fruit juice based drinks. Secondly, Appellant department argued that sugar, sweetening matter and carbon dioxide predominate the weight of fruit juice. However, CESTAT, did not agree with this view that composition alone will provide the essential character and gave plenty of examples such as Nimbu Pani (nimbu being the smallest component defines the drink), watermelon (99% water), ice-cream (50% is air) etc. to observe that predominance of a component may not matter at all in many cases. CESTAT, went a step ahead and observed that fruit juice alone also gives the essential character of the Fruit drinks. Accordingly, CESTAT, on application of Rule 3(c) of GRI held that since tariff item 22029920 comes later than 22021010, the Fruit Drinks are classifiable as tariff item 22029920.

Needless to mention, this decision gave a huge sigh of relief to the assessees. However, this was only a temporary relief for it was known that, keeping in mind the nation-wide impact of this decision, department would be filing an appeal against the said decision. In the meantime, there were amendments in Notification 1/2017-IT (Rate). Sr. No. 12 B was introduced under Schedule IV (28% IGST) and covered Carbonated Beverages of Fruit Drink or Carbonated Beverages with Fruit Juice. Sr. No. 48 (12% IGST) under Schedule II was amended and the revised entry covered Fruit pulp or fruit juice based drinks other than Carbonated Beverages of Fruit Drink or Carbonated Beverages with Fruit Juice.

Earlier, this month the Hon’ble Supreme Court dismissed the appeal of the Appellant department⁶ and after going through the detailed and reasoned decision of CESTAT, it observed that in its opinion, the decision of CESTAT, does not call for interference.

It is pertinent to emphasize that Appellant department before the Hon’ble Supreme Court, argued that the drinks have predominantly carbonated water and sugar along with a very small percentage of fruit juice. This shows that the essential character of the drinks under dispute is provided by carbonated water and sugar. According to them, the fruit juice content is very miniscule, therefore, these cannot be classified as tariff item 2022 9920. As mentioned earlier, this view has been adopted and confirmed by various states’ Authority for Advance Ruling and Appellate Authority for Advance Ruling respectively. Proceedings with similar understanding have been initiated by various jurisdictional officers as well. The Hon’ble Supreme Court did not agree with this view of Appellant department. As a consequence, proceedings initiated against other assessees with similar basis, should be dropped.

One may argue that on application of principles of res judicata and judicial discipline, the issue stands settled and should be followed by all officers. Accordingly, all the proceedings initiated against other assessees on this issue of classification and applicable rate of GST on Carbonated Fruit Drinks should be dropped. However, whether this judgment will provide any shelter today for current period supplies, keeping in mind the amendments brought in Notification 1/2017-IT (Rate) is yet to be seen.