Supreme Court Rules Health Powders and Biscuit Not Taxable as Beverages

A dispute over the tax classification of 'GRD Powder' and 'GRD Mix', manufactured and sold by Cadila Health Care Ltd.

The Commercial Tax Department of Madhya Pradesh argued that because product packaging directed consumers to mix the powder with milk or water, the products should be taxed at 10% as "Non-Alcoholic Drinks and Beverages" under Entry 20(ii), Part IV, Schedule II of the M.P. Commercial Tax Act, 1994.

Cadila countered that since the goods were sold over the counter in "Powder and Biscuit" form, they did not constitute beverages and fell under the residuary entry, attracting an 8% tax rate.

The High Court of Madhya Pradesh ruled in favor of Cadila, upholding the 8% residuary rate, however an appeal by the authorities made before the Supreme Court Division Bench.

The Apex Court analyzed the matter and made important observations:

The Apex Court emphasized that tax authorities are legally required to evaluate a product as it is supplied, as "Taxable Event is the Point of Supply", not by what it might become after purchase and held that Entry 20(ii) classifies goods by their physical characteristics rather than their end use. A powder mix remains taxable as a powder, regardless of whether a customer later dissolves it in milk or uses it to make solid food.

Application of "Ejusdem Generis", the Apex Court while analyzing Entry 20(ii), noted that terms grouped alongside "beverages"—such as syrups, cordials, juices, and essences—all describe liquid substances. Applying the rule of ejusdem generis, the general term "beverages" must take color from its liquid companions and cannot be expanded to cover solid powders.

• Strict Construction and Residuary Entry: Taxing statutes must be interpreted strictly based on their plain text. Commodities that do not fit the specific description of a named entry automatically move to the residuary entry and cannot be forced into an ill-fitting category merely to collect a higher tax rate.

The Supreme Court Division Bench, comprising Justice Manmohan and Justice Arun Palli, dismissed the Revenue's appeals and affirmed the High Court's decision and held that since GRD Powder and Mix exist as solids or powders at the point of sale, they cannot be categorized as beverages.

The Apex Court held that the incidence of taxation is strictly determined by the physical form and nature of the product at the precise time of sale—the taxable event—rather than its eventual end use by the consumer.

Bench: Justice Manmohan and Justice Arun Palli,