Supreme Court holds ‘Appy Fizz’ as health drink.
The two judge bench of Supreme Court of India, in a significant ruling, held that “Appy Fizz” is classifiable as health drink and therefore, 12.5% of VAT is leviable under the Kerala Value Added Tax Act, 2003.
The appellant, an assessee under the KVAT Act, classified the product, “Appy Fizz” as fruit juice based drink under Entry 71 of the notification issued under Section 6(1)(d) of Act, 2003 paid @ 12.5% VAT. In the year 2007, the Department initiated assessment proceedings against one of the distributors of the assessee finding that the product, “Appy Fizz”, being an “aerated branded soft drink” is taxable @ 20%. The OT Revision filed against the order was dismissed by the High Court. The Special Leave Petition filed against the order was later permitted to be withdrawn.
Later, the department initiated proceedings against the assessee. On receipt of Show cause Notice, the assessee filed an application before the Commissioner, Commercial Taxes, Trivandrum, seeking clarification on the rate of tax applicable for the product, wherin it was stated that the product, “Appy fizz” is taxable at the rate of 20% under the KVAT Act.
The order was upheld by the Single bench of the High Court. Though the order was challenged before the division bench on appeal, the appellant failed to secure relief.
Before the Apex Court, the appellant challenged the order u/s 94 of the KVAT Act passed by the Commissioner contending that Classification of the product as ‘aerated branded soft drinks, excluding soda’ under Section 6(1)(a) is not the correct classification. They relied on the certificates and expert opinions which indicate that use of carbon dioxide to the extent of 0.6 percent was only for the purpose of preservative in packaging the commodities and the product was thermally processed and carbon dioxide was added to as the preservative. They produced the Orders of Food Safety Authority and expert opinion which specifically states that ‘Appy Fizz’ is commercially and technically distinct from products which have been classified as ‘aerated branded soft drinks’.
The bench observed that the goods which are not congenial to health and environment are charged with higher tax level as per the scheme of the Act.
Aligning with the contentions of the appellants, the two judge bench comprising of Justice A.K Sikri and Justice Ashok Bhushan observed that the product in dispute does not undergo aeration or carbonation and the product is thermally processed with carbon dioxide which helps in preserving the Apple Juice concentrate which is otherwise perishable in nature. Quashing the orders passed by the Revenue, the Top court observed that the revenue has not filed any material in support of their claim that product is that is ‘aerated branded soft drink’ and is covered under section 6(1)(a) of the KVAT Act.
Allowing the appeal, the bench further clarified that aerated branded soft drinks which are referred to in section 6(1)(a) cannot be drinks which are health drinks. It was held that fruit juice based drinks can be regarded as health drinks as compared to other aerated branded soft drinks like pepsi cola, coka cola, etc. thus, the product in question that is ‘Appy Fizz’ was held to be a commodity which is fully covered by Item No.5 of Entry 71 as amended by S.R.O. No.119 of 2008.
Read the full text of the Judgment below.
