2018 (7) TMI 668 - HC - VAT and Sales Tax

Classification of goods - Sharbat Rooh Afza - U.P. VAT Act - common parlance test - essential character test - Whether the Commercial Tax Tribunal was legally justified in passing the impugned order classifying the product Rooh Afza under the residuary entry (Entry 1 of Schedule V) and not under the Entry 103 of Part A of Schedule II of the U.P. VAT Act? Held that - The application of common parlance test is an extension of general principles of interpretation of Statute for deciphering the mind of the law-maker. In the absence of a statutory definition in precise term; words, entries and items in physical Statute must be construed in terms of their commercial or trade understanding or according to their popular meaning. In other words they have to be constructed in the sense that the people conversant with the subject matter of the Statute would attribute to it. Resort to rigid interpretation in terms of artificial and technical meaning should be avoided in such circumstances - the Tribunal has neither committed any error of law to apply common parlance test nor committed any error to record the findings of fact that Sharbat Rooh Afza is not a fruit drink. It is evident that the commodity in question i.e. Sharbat Rooh Afza is neither a fruit drink nor a fruit juice nor a processed fruit rather it is a Non Fruit Syrup/Sharabat being a concentrated sugar syrup which is not specified in Schedule-I, II, III & IV of the Act. Therefore, it is an unclassified item falling under the residuary entry of Schedule-V of the Act - Since the commodity Sharbat Rooh Afza does not fall under any Entry in Schedule I, II, III and IV, therefore, it shall fall under the residuary entry in Schedule-V of the Act. Revision dismissed - decided against revisionist.

Summary

Issues Involved:
1. Classification of "Rooh Afza" under U.P. VAT Act.
2. Application of common parlance test.
3. Consideration of essential character test.

Issue-wise Detailed Analysis:

1. Classification of "Rooh Afza" under U.P. VAT Act:
The primary issue was whether "Rooh Afza" should be classified under the residuary entry (Entry 1 of Schedule V) or under Entry 103 of Part A of Schedule II of the U.P. VAT Act. The revisionist argued that "Rooh Afza" is a fruit drink or processed fruit, thus liable to tax at 4% under Entry 103. They cited previous judgments, licenses under the Food Safety and Standards Act, and expert opinions to support their claim. However, the court noted that the product is labeled as "Sharbat Rooh Afza," a non-alcoholic sweetened beverage, and is manufactured under licenses categorizing it as a non-fruit syrup. The court concluded that "Rooh Afza" is not a fruit drink but a concentrated sugar syrup, thus falling under the residuary entry liable to tax at 12.5%.

2. Application of Common Parlance Test:
The court applied the common parlance test to determine how the product is understood by consumers and traders. It was established that "Rooh Afza" is commonly known and used as "Sharbat" and not as a fruit drink or juice. The court referenced several judgments emphasizing the importance of common parlance in tax matters, stating that terms in taxing statutes should be interpreted as understood in trade and by consumers, not in technical or scientific terms. The court found that "Rooh Afza" is perceived as a sharbat, which supports its classification under the residuary entry.

3. Consideration of Essential Character Test:
The revisionist argued that the essential character test, a principle in classification of goods under taxation law, was not considered. However, the court found that the essential character of "Rooh Afza" is that of a non-fruit syrup, as it contains only 10% fruit juice, insufficient to qualify as a fruit syrup or drink. The court reiterated that the product's classification should align with its primary usage and representation to consumers, which in this case is as a sharbat.

Conclusion:
The court upheld the Tribunal's decision that "Rooh Afza" is an unclassified item under Schedule V of the U.P. VAT Act, liable to tax at 12.5%. The product does not qualify as a fruit drink or processed fruit under Entry 103. The common parlance test was appropriately applied, and the essential character of the product was correctly identified as a non-fruit syrup. All revisions were dismissed, affirming the Tribunal's findings.