Supreme Court Holds GRD Powder and GRD Mix Not Taxable as Non-Alcoholic Beverages:

The dispute arose from the classification of ‘GRD Powder’ and ‘GRD Mix’, manufactured and marketed by Cadila Health Care Ltd., for the Assessment Year 1997–1998 under the Madhya Pradesh Commercial Tax Act, 1994. The Revenue argued that the products were intended to be mixed with milk or water and consumed as health drinks. Accordingly, it sought to classify them as ‘Non-Alcoholic Drinks and Beverages’ under Entry 20(ii), Part IV, Schedule II, attracting tax at 10%.

The assessee maintained that the products were sold in powder and biscuit form and, therefore, fell under the residuary Entry 1, Part VII, Schedule II, attracting tax at 8%. The Madhya Pradesh High Court, by its judgment dated August 3, 2011, upheld the classification under the residuary entry. Aggrieved by the decision, the Revenue approached the Supreme Court.

The Supreme Court observed that taxing statutes must be interpreted strictly according to their plain language. No intention can be presumed beyond what is expressly provided, and words cannot be added to or substituted in a taxing provision to expand its scope.

The Court held that the taxable event is the supply of goods, and the incidence of taxation is determined by the nature and form in which the goods are sold. Tax authorities must examine the product supplied rather than its subsequent end use. The fact that a powder can be mixed with milk or water to prepare a beverage does not transform the product into a beverage at the time of sale. Accordingly, a powder sold in its original form must be classified according to the applicable entry governing that form.

Since ‘GRD Powder’ and ‘GRD Mix’ were sold in powder and biscuit form, they did not fall within the expression ‘beverages’ merely because consumers could subsequently use them to prepare a drink. 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 subsequent use in preparing a beverage or another food preparation did not alter their classification at the point of sale.

Accordingly, the products could not be classified as non-alcoholic drinks and beverages under Entry 20(ii), Part IV, Schedule II of the M.P. Commercial Tax Act, 1994. The Court upheld their classification under the applicable residuary entry and dismissed the Civil Appeals.