Classification For Rate Of Commercial Tax Must Be Based On Form Of Goods At Time Of Sale & Not On Manner In Which Consumer May Choose To Use It: Supreme Court
The Supreme Court was considering the appeals filed against the judgment passed by the Madhya Pradesh High Court upholding the classification of ‘GRD Powder’ and ‘GRD Mix ’ under the M.P. Commercial Tax Act, 1994.
Justice Manmohan, Justice Arun Palli, Supreme Court
While upholding an order subjecting ‘GRD Powder’ and ‘GRD Mix’ to tax, the Supreme Court has held that the classification which determines the applicable rate of tax must be based on the form of the good at the time of sale and not on the manner in which the consumer may later choose to use it.
The Apex Court was considering the appeals filed against the judgment passed by the Madhya Pradesh High Court upholding the classification of ‘GRD Powder’ and ‘GRD Mix’, manufactured and marketed by the Respondent, under the residuary entry of Schedule II to the M.P. Commercial Tax Act, 1994 (1994 Act), thereby subjecting them to tax at the rate of eight per cent (8%) for the Assessment Year 1997-1998.
The Division Bench of Justice Manmohan and Justice Arun Palli held, “Consequently, the classification which determines the applicable rate of tax must be based on the form of the good at the time of sale and not on the manner in which the consumer may later choose to use it.”
“Accordingly, this Court is of the view that the identity of the goods at the time of taxable event, namely, sale, must be the determinative factor for the purpose of classification under the taxing statute”, it added.
AOR Mrinal Gopal Elker represented the Appellant while Advocate Vivek Sarin represented the Respondent.
Arguments
The appellants claimed that the indications on the goods ‘GRD Powder’ and ‘GRD Mix’, both in terms of graphical representation and the accompanying instructions, require the consumer to dilute the goods with milk or water and thus the goods were classifiable as ‘Non-Alcoholic Drinks and Beverages’ falling under Entry 20(ii), Part IV, Schedule II of the 1994 Act. It was submitted that the same attracted tax at the rate of 10%.
The Respondents, however, contended that the said goods, being sold across the counter in the form of powder and biscuit, were exigible to tax at the rate of eight per cent (8%) under the residuary entry.
Reasoning
The Bench, at the outset, reiterated that the taxing statutes are to be strictly construed and the Court cannot assume any intention beyond what is manifest in the plain language of the provision.
“However, 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. For instance, if a powder mix such as protein powder is sold, the tax applicable to powders alone can be levied. Conversely, if a ready-to-drink beverage such as bottled cold coffee or a packaged proteins shake is sold, the tax applicable to beverages must be imposed”, it stated.
The Bench further added, “The subsequent use by the consumer in mixing the powder with water or milk to prepare a drink does not alter the taxable event, for liability is determined at the point of supply. It is equally conceivable that protein powder may be consumed in liquid form after mixing with milk or water, or alternatively, it may be used in the preparation of an Indian milk-based fudge (barfi) and consumed in solid form.”
Considering that Entry 20(ii), the expression ‘beverages’ is followed by ‘syrups, cordials, distilled juice, ark and essences’, all of which denote liquids or liquid preparations, the Bench stated, “The common thread running through these enumerated items is that they are liquid substances capable of being bottled, stored and consumed or otherwise utilised in liquid form.”
The Bench concurred with the contention of the Respondents that the goods which do not answer the description of a specific entry must necessarily fall within the residuary entry and they cannot be forced into an inapposite specific entry merely to attract a higher rate of tax.
Considering that the goods, at the time of the taxable event, exist in the form of powder and biscuit and there was a possibility that the goods may ultimately be used to make a beverage or a solid preparation, at the point of taxable event, they remain in powder form, the Bench held that they did not fall within the expression ‘beverage’. The Bench thus dismissed the appeal.
Cause Title: Addl. Commr. Commercial Tax & Ors. v. Cadila Health Care Ltd. & Anr. (Neutral Citation: 2026 INSC 1078)
Appearance
Appellant: AOR Mrinal Gopal Elker, Govt. Advocate Arkaj Kumar, Advocates Silpi S Swain, Srajan Yadav, Shubhangi Gupta, Rashika, AOR Harmeet Singh Ruprah, Advocates Anil Hooda, Kanishk Sharma, Karan Singh, Siddhartha Shrivastava
Respondent: Advocates Vivek Sarin, Deepak Kumar Jain, AOR Bhargava V. Desai, Advocates Shivam Sharma, Prakriti Rastogi, Nandita Singhal, Surabhi Tuli