Local beverage players that were giving global companies such and Coke and Pepsi Co. a run for their money are currently feeling the heat from authorities for allegedly not adding the required amount of fruit juice into their products and yet claiming the benefit of lower goods and services tax (GST).
Fruit-based beverages that have more than 10% fruit juice fall under the 12% GST slab, while 40% GST is levied on sugary fizzy drinks such as colas with no fruit content, which are classified as sin goods. Several local companies that have been adding less than 10% fruit juice in their products have been paying only 12% GST so far. As a result, many have faced questions from tax authorities.
“We have been asked to provide our books of accounts to the authorities. But it’s a routine check,” said Vishnoo Mittal, co-founder of Xalta, one of the largest local beverage largest local beverage companies in India.
Apart from selling just colas and juices, both local and global beverage makers have been scrambling to add fruit in fizzy drinks after PM Narendra Modi urged companies to add 5% fruit juice in their products in 2014. It resulted in Coke piloting it popular drink Fanta with added fruit juice, while Pepsi Co. recently launched fizzy drinks. It said beverages with fruit juice content below 10% but no less than 5%, and 2.5% in the case of lime and lemon, should be called beverage with fruit juice. The tax authorities suspect smaller players in the soft drinks business were misinterpreting the definition of “carbonated fruit drinks” to claim the benefit of lower GST.
But the beverage makers defended their action. “This is very confusing as we have no idea under what GST slab carbonated fruit beverages fall in,” said Yash Tekwani, director of New Delhi-based SBS Prince Beverages that sells drinks under the Prince Cola and AAP Cola brands. A senior executive at a global beverage firm, however, said that under the current norms, a manufacturer will have to pay 40% GST on any beverage that has less than 10% fruit juice.