The Supreme Court has held that goods sold in the form of powder or biscuits cannot be classified as “non-alcoholic drinks and beverages” merely because they may subsequently be mixed with milk or water to prepare a beverage.

A bench of Justice Manmohan and Justice Arun Palli considered an issue of whether the goods should be classified based on their end use, that is, the fact that they could be mixed with milk or water to make a drink, or based on their form when sold.

Answering the issue, the Court held that for the purpose of tax classification, the form in which goods exist at the time of sale is determinative, and their subsequent use by consumers cannot alter the taxable classification to levy a higher rate of tax on a consumer.

The case arose after the Revenue considered the Respondent-Cadila Health Care's products 'GRD Powder' and 'GRD Mix' to be a beverage, saying that the end use of the powder would be a liquid intake by a consumer, regardless of the original form of the product i.e., powder or biscuit.

The Revenue urged that the goods are classifiable as 'Non-Alcoholic Drinks and Beverages' falling under Entry 20(ii), Part IV, Schedule II of the M.P. Commercial Tax Act, 1994, attracting tax at 10%.

The Respondent, however, contended that the goods, being sold across the counter in the form of powder and biscuit, are exigible to tax at 8% under the residuary entry.

The Madhya Pradesh High Court, by impugned judgment, upheld the classification of the goods under the residuary entry of Schedule II to the 1994 Act, subjecting them to tax at 8% for the Assessment Year 1997-1998. Aggrieved, the Revenue appealed to the Supreme Court.

Dismissing the appeal, the judgment authored by Justice Manmohan upheld the impugned order, stating that the taxable event is the act of supply and that the incidence of taxation is determined by the nature of the goods in the form in which they are sold.

“The tax authorities are bound to levy tax based on the form of the good at the time of sale. The tax authorities are bound to look at what is supplied and not at what is the 'end use' of the good.”, the Court said.

The Court illustrated the principle by observing that if a protein powder is sold as powder, the tax applicable to powders would apply. On the other hand, if a ready-to-drink beverage such as bottled cold coffee or a packaged protein shake is sold, it would attract the tax applicable to beverages.

The Court noted that the specific items mentioned alongside “beverages,” i.e., syrups, cordials, distilled juices, ark and essences, all denote liquids or liquid preparations.

According to the Court, the common thread running through these products is that they are liquid substances capable of being bottled, stored and consumed or otherwise utilised in liquid form.

Therefore, the expression “beverages” could not be interpreted in isolation to include products having a fundamentally different physical form.

The Revenue had relied upon earlier decisions concerning products such as Rasna, tea and sharbat. In Pioma Industries v. State of Kerala (2008), concerning Rasna, the relevant entry itself contained an explanation specifically including powders, tablets and concentrates used for preparation of non-alcoholic drinks. The Court noted that the legislature was therefore aware that powders could be expressly included within the category of non-alcoholic beverages, but had not adopted such language in the present entry.

The Court also distinguished its recent decision in Hamdard (Wakf) Laboratories v. Commissioner, Commercial Tax, U.P. 2026 LiveLaw (SC) 197, observing that the sharbat involved in that case existed in liquid form, unlike the products before the Court. The Court further clarified that the word “including” in a taxing entry cannot automatically be treated as an all-encompassing expression capable of covering every product remotely connected with beverages.

As a result, the appeal was dismissed.

Appearance:

For Appellant(s) : Ms. Mrinal Gopal Elker, AOR Mr. Arkaj Kumar, Adv. Mr. Srajan Yadav, Adv. Mr. Arkaj Kumar Ga, Adv. Mr. Harmeet Singh Ruprah, AOR Mr. Aakarsh Mishra, Adv.

For Respondent(s) : Mr. Vivek Sarin, Sr. Adv. Mr. Bhargava V. Desai, AOR Ms. Nandita Shinghal, Adv. Mr. Shivam Sharma, Adv. Ms. Prakriti Rastogi, Adv. Ms. Nandita Singhal, Adv. Ms. Surabhi Tuli, Adv.