The Supreme Court has held that goods must be classified for taxation according to the form in which they are sold, rather than the form in which a consumer may later use them. The ruling came in a dispute concerning Cadila Health Care Ltd.’s ‘GRD Powder’ and ‘GRD Mix’, which were sold in powder and biscuit forms but could be mixed with milk or water to prepare a drink.
A Bench comprising Justice Manmohan and Justice Arun Palli dismissing the appeals filed by the Commercial Tax authorities. The judgment confirms that the taxable classification has to be determined at the point of sale.
Background
The dispute arose from the assessment year 1997-98 under the Madhya Pradesh Commercial Tax Act, 1994. The Revenue argued that GRD Powder and GRD Mix should be treated as “non-alcoholic drinks and beverages” under Entry 20(ii), which carried a 10% tax rate.
Cadila Health Care, however, maintained that the products were sold as powder and biscuit and therefore fell under the residuary entry, attracting 8% tax. The Madhya Pradesh High Court had earlier upheld this classification, leading the Revenue to approach the Supreme Court.
The Supreme Court was therefore required to determine whether classification should depend on the product's eventual use or its physical form at the time of sale.
The Supreme Court examined whether the products should be classified according to their eventual use or their physical form when sold. It held that the taxable event is the supply of the goods and that their classification must be based on the form existing at that stage.
“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 noted that Entry 20(ii) referred to beverages along with syrups, cordials, distilled juices, ark and essences. According to the judgment, these associated products share a common characteristic: they are liquid substances. The Court therefore held that “beverages” could not be interpreted to cover goods having a different physical form merely because they could later be converted into a drink.
The Court also rejected reliance on the common-parlance, functional-character or basic-nature tests where they would introduce an end-use requirement contrary to the clear statutory language. It further held that goods not covered by a specific entry must fall under the residuary entry rather than being placed in an unsuitable entry carrying a higher tax rate.
The Supreme Court concluded that GRD Powder and GRD Mix existed in powder and biscuit form at the time of the taxable event. Their possible later use for preparing a beverage did not change their classification.
The Court accordingly held that the products did not fall within the expression “beverage” and dismissed the appeals filed by the Commercial Tax authorities.
Case Details
Case Title: Addl. Commr. Commercial Tax & Ors. v. Cadila Health Care Ltd. & Anr.
Case Number: Civil Appeal Nos. 9788-9789 of 2013
Judges: Justice Manmohan and Justice Arun Palli
Decision Date: October 5, 2026
