Health Powder Mixed With Milk or Water Cannot Be Taxed as a Beverage; Supreme Court Says Classification Depends on Form of Goods at Time of Sale
Revenue Seeks Higher Tax on GRD Powder and GRD Mix as Non-Alcoholic Beverages; Supreme Court Rejects End-Use Test and Upholds Residuary Classification
Facts
Cadila Health Care Ltd manufactured and marketed products described as ‘GRD Powder’ and ‘GRD Mix’. The dispute concerned their classification under the M.P. Commercial Tax Act, 1994 and the Entry Tax Act, 1976 for Assessment Year 1997-1998.
The Revenue contended that the packaging and instructions required consumers to dilute or mix the products with milk or water and therefore the products should be classified as ‘Non-Alcoholic Drinks and Beverages’. Under Entry 20(ii), Part IV, Schedule II of the 1994 Act, that classification attracted tax at 10%.
Cadila contended that the goods were actually sold over the counter in powder/biscuit form and were therefore not beverages at the taxable event. It claimed classification under the residuary entry attracting tax at 8%.
The Madhya Pradesh High Court accepted Cadila’s classification and held that GRD Powder and GRD Mix fell under the residuary entry. The Commercial Tax authorities appealed to the Supreme Court.
For Entry Tax during 1997-1998, the Court also noticed three different statutory phases: from 1 April to 30 April 1997 the residuary entry attracted 1%; from May to September 1997 there was no applicable entry covering the goods; and from 1 October 1997 to 31 March 1998 the competing provisions included Entry 14 for non-alcoholic drinks and beverages at 2% and the residuary Schedule III entry at 1%.
Issues
What is the relevant taxable event for classification: the physical form and identity of the goods at the time of sale, or the end product prepared by the consumer?
Whether ‘GRD Powder’ and ‘GRD Mix’, which may subsequently be mixed with milk or water, can be classified as ‘Non-Alcoholic Drinks and Beverages’.
Whether common parlance, functional character or basic-nature tests can be used to import an end-use concept where the statutory taxing entry itself provides clear guidance.
Whether goods that do not satisfy the specific beverage entry must fall under the residuary entry.
Appellants’ Arguments
The Commercial Tax authorities argued that taxing entries should be construed in their natural commercial sense rather than hyper-technically. The product packaging itself encouraged consumers to enjoy the preparation hot or cold and contained instructions for mixing it with milk or water.
They argued that the graphical representation and manner of marketing showed that GRD Powder and GRD Mix were health drinks rather than health foods. Tea and coffee, though often sold in powder or granular form, are commonly understood as beverages.
The Revenue relied on the common-use and functional-character test, the basic-nature test and the popular-meaning/common-parlance test. It cited Atul Glass Industries, Indian Aluminium Cables and other authorities to argue that the products were functionally non-alcoholic beverages.
It relied upon Pioma Industries, involving Rasna, to contend that health-drink powders can fall within the beverage category.
The Revenue also relied on Hamdard (Wakf) Laboratories v. Commissioner, Commercial Tax, U.P. and emphasised that Entry 20(ii) used the word ‘including’, which according to it expanded the scope of the expression ‘Non-Alcoholic Drinks and Beverages’.
Respondents’ Arguments
Cadila argued that the charging scheme taxed the goods actually sold and that a commodity not falling within a specific entry could not be artificially forced into that entry merely to impose a higher rate.
It submitted that Entry 20(ii) contained no reference to the future use or adaptation of the goods. The consumer’s subsequent act of mixing the powder with milk or water was therefore irrelevant to classification.
Relying on Dunlop India Ltd. v. Union of India, Cadila argued that end use is not determinative of classification.
It further relied upon Hamdard Wakf Laboratories v. Collector of Central Excise for the proposition that beverages are, broadly speaking, liquids for drinking. Since the products were not in liquid form when sold, they could not be classified as beverages.
Analysis of the Law
The Supreme Court reiterated that taxing statutes must be strictly construed. A court cannot assume a legislative intention beyond the plain statutory language, add words to a fiscal entry, or enlarge a tax merely because a broader construction may appear commercially plausible.
The Court identified the taxable event as the act of supply or sale and held that the incidence of tax is determined by the nature of the goods in the form in which they are supplied. Tax authorities must examine what is sold, not what the consumer may later make from it.
The Court illustrated the distinction by observing that a protein powder sold as powder attracts the classification applicable to that form, whereas a ready-to-drink bottled cold coffee or packaged protein shake may properly be taxed as a beverage.
The subsequent mixing of powder with water or milk cannot transform the character of the goods retrospectively for tax purposes. The same powder might also be used in a solid preparation such as barfi, demonstrating why consumer end use cannot control classification.
The Court examined Entry 20(ii), which referred to non-alcoholic drinks and beverages including syrups, cordials, distilled juices, ark and essences. The common thread running through these enumerated goods was their liquid character.
Applying ejusdem generis, the Court held that ‘beverages’ must be construed in the context of the associated words and cannot be stretched to encompass goods of a fundamentally different physical form.
Because Entry 20(ii) did not classify goods by reference to their end use, the physical identity of the goods at the point of sale was determinative.
Precedent Analysis
Mathuram Agrawal v. State of Madhya Pradesh was relied upon for the settled principle that taxing statutes must be interpreted from their plain language and that ambiguity in the essential ingredients of a tax cannot be supplied judicially.
Commissioner of Central Excise, Delhi v. Carrier Aircon Ltd. supported the proposition that end use, by itself, cannot determine classification and that the statutory entry, basic character, function and use of the goods must be considered.
Atul Glass Industries and Indian Aluminium Cables were relied upon by the Revenue for functional-character and basic-nature tests. The Court held that such interpretive tests cannot override explicit or implicit statutory guidance by importing an end-use concept.
Pioma Industries was distinguished because the entry considered there expressly included ‘powders, tablets and concentrates used for the preparation of non-alcoholic drinks’. The Legislature had not inserted comparable language into the entry applicable to Cadila’s products.
S. Samuel M.D., Harrisons Malayalam v. Union of India was also distinguished. That case concerned whether tea was a foodstuff and did not decide whether tea leaves or granules themselves constituted a beverage.
Hamdard (Wakf) Laboratories v. Commissioner, Commercial Tax, U.P. was distinguished because the sharbat there existed in liquid form. The Court also clarified that the word ‘including’ cannot be treated as infinitely expansive so as to cover goods of every physical form.
Court’s Reasoning
The decisive question was the identity of GRD Powder and GRD Mix at the taxable event. At the point of sale, the products existed in powder/biscuit form and not as liquid drinks.
The fact that packaging instructed or encouraged consumers to mix the goods with milk or water did not alter their taxable identity. The Court rejected classification based on the end product chosen by the consumer.
The statutory entry itself gave contextual guidance: beverages, syrups, cordials, distilled juices, ark and essences shared a liquid character. A powder could not be brought into this class merely because it was capable of becoming a drink after further preparation.
The Court held that common-parlance, functional-character and basic-nature tests cannot be deployed to bypass clear statutory language or to import an end-use criterion that the Legislature did not prescribe.
Where goods do not answer the description of a specific entry, they must fall within the residuary entry. They cannot be forced into an inapposite specific entry merely to attract a higher tax rate.
Conclusion
The Supreme Court held that GRD Powder and GRD Mix did not fall within the expression ‘Non-Alcoholic Drinks and Beverages’ because, at the time of the taxable event, they existed in powder/biscuit form.
The possibility that consumers might later mix the products with milk or water to prepare a beverage was irrelevant. Classification had to be determined by the form of the goods at the time of sale, not their subsequent end use.
The Court therefore upheld the Madhya Pradesh High Court’s residuary classification and dismissed the appeals filed by the Commercial Tax authorities. Pending applications, if any, were also disposed of.
Case Details
Case: Addl. Commr. Commercial Tax & Ors. v. Cadila Health Care Ltd & Anr.
Citation: 2026 INSC 1078
Court: Supreme Court of India, Civil Appellate Jurisdiction
Case Number: Civil Appeal Nos. 9788-9789 of 2013
Bench: Justice Manmohan and Justice Arun Palli
Judgment by: Justice Manmohan
Date: 5 October 2026Result: Appeals dismissed; High Court’s classification of GRD Powder and GRD Mix under the residuary entry upheld
