Fruit juice based drink classification prevails; fraud-based tax demand, penalty, interest and retrospective higher-rate claims fail.

Carbonated fruit drinks whose essential character derived from fruit juice or pulp were held classifiable under Tariff Item 2202 99 20 as fruit pulp or fruit juice based drinks, not under the water-based entry for added sugar or flavouring. Laboratory reports, labels and FSSAI standards supported that classification, and the Revenue failed to justify departure from the assessees' declared entry. On that basis, the invocation of Section 74, together with penalty under Section 122 and interest under Section 50, was held unsustainable because there was no deliberate suppression and the core demand failed. Notifications enhancing GST and cess on carbonated fruit beverages were held prospective only and could not apply to prior periods.

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Issues: (i) Whether the petitioners' carbonated fruit drinks were correctly classifiable under Tariff Item 2202 99 20 as fruit pulp or fruit juice based drinks, or under Tariff Sub-heading 2202 10 90 as waters containing added sugar or flavouring. (ii) Whether invocation of Section 74, levy of penalty under Section 122, and levy of interest under Section 50 were sustainable. (iii) Whether the notifications enhancing tax and cess on carbonated beverages of fruit drink or fruit juice operated retrospectively for the disputed periods.

Issue (i): Whether the petitioners' carbonated fruit drinks were correctly classifiable under Tariff Item 2202 99 20 as fruit pulp or fruit juice based drinks, or under Tariff Sub-heading 2202 10 90 as waters containing added sugar or flavouring.

Analysis: The tariff scheme under Heading 2202 distinguishes between waters, including aerated waters, and other non-alcoholic beverages. The specific entry for fruit pulp or fruit juice based drinks was treated as covering drinks whose essential character is derived from fruit juice or pulp, even where other ingredients such as water, sugar, flavours, or carbonation are also present. The Court applied the principle that goods must be classified according to the most specific description and, where necessary, according to their essential character. It also accepted that the laboratory reports, labels, and the FSSAI standards supported the petitioners' case that the products were marketed and understood as fruit juice based drinks and not as water-based aerated drinks. The burden remained on the Revenue to justify departure from the assessee's classification, which it failed to discharge.

Conclusion: The products were held to be correctly classifiable under Tariff Item 2202 99 20, in favour of the assessees.

Issue (ii): Whether invocation of Section 74, levy of penalty under Section 122, and levy of interest under Section 50 were sustainable.

Analysis: Section 74 requires fraud, wilful misstatement, suppression of facts, or contravention with intent to evade tax. The Court found no deliberate non-disclosure or mala fide suppression because the petitioners had consistently disclosed the classification and paid tax on that basis in their returns. Since the core demand itself was unsustainable, the consequential penalty could not survive. For the same reason, interest under Section 50 also could not be levied once the underlying demand failed. The ingredients for penalty under Section 122 were treated as materially identical to those required for Section 74 in the facts of the case.

Conclusion: Invocation of Section 74 and the consequential penalty and interest demands were held unsustainable, in favour of the assessees.

Issue (iii): Whether the notifications enhancing tax and cess on carbonated beverages of fruit drink or fruit juice operated retrospectively for the disputed periods.

Analysis: The Court held that the notifications introducing a higher rate of GST and compensation cess on carbonated beverages of fruit drink or carbonated beverages with fruit juice operated only from their effective date. They could not be used to fasten a higher tax liability for prior periods. The subsequent insertion of a specific entry was treated as supporting the view that the disputed products were not previously covered by the higher-rate entry invoked by the Revenue.

Conclusion: The enhanced rate notifications were held to be prospective only, in favour of the assessees.

Final Conclusion: The impugned show cause notice and the consequential orders were quashed, and the petitioners' classification under the fruit juice based drinks entry was upheld together with rejection of the tax, penalty, interest, and cess demands for the disputed periods.

Ratio Decidendi: Where a beverage derives its essential character from fruit juice or fruit pulp and is marketed and understood as such, it is classifiable under the specific fruit juice based drinks entry rather than the general water or aerated water entry; consequential demands under fraud-based provisions cannot survive absent deliberate suppression, and later enhancing notifications operate only prospectively.

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