• Dated 07^th October, 2026

TAX CLASSIFICATION MUST BE BASED ON FORM OF GOODS AT STAGE OF SALE & NOT ITS END USE: SUPREME COURT

Brief Facts:

The case concerned the classification of GRD Powder and GRD Mix, which were sold in powder/biscuit form but could be mixed with milk or water and consumed as a drink. The dispute was whether the products should be classified as non-alcoholic drinks and beverages attracting 10% tax or under the residuary entry attracting 8% tax.

Assessee's Contention:

The assessee contended that the goods were sold as powder/biscuit and not as ready-to-consume beverages. The subsequent act of mixing the product with milk or water could not alter its classification at the time of sale. Therefore, the goods should fall under the residuary entry.

Department's Contention:

The Department argued that the products were intended to be consumed as health drinks, and the packaging itself instructed consumers to mix them with milk or water. Accordingly, their functional character was that of non-alcoholic drinks and beverages, attracting the higher rate of tax.

Court Held:

The Supreme Court held that classification must be determined on the basis of the form and nature of the goods at the time of sale, and not on the basis of their subsequent use by the consumer. Since the goods were sold as powder/biscuit and not as liquid beverages, they could not be classified as beverages merely because they could subsequently be converted into a drink. The Court further held that goods cannot be forced into a specific entry merely to attract a higher rate of tax. Accordingly, the goods fell under the residuary entry, and the Department's appeals were dismissed.

BTA Comment

The judgment provides a practical and taxpayer-friendly approach to classification disputes by clarifying that the form and nature of goods at the time of sale must be the primary basis for determining taxability, rather than their subsequent or intended end use. Therefore, where goods are supplied in powder or other non-liquid form, they cannot be classified as beverages merely because they may subsequently be mixed with water or milk. The decision also reinforces that a specific taxing entry cannot be stretched to cover goods which do not satisfy its statutory description merely to attract a higher rate of tax; where the specific entry does not apply, the goods should fall under the appropriate residuary entry. This provides a clear and objective framework for both taxpayers and tax authorities and can be relied upon where classification is sought to be determined primarily on the basis of end use.

Case ref: ADDL. COMMR. COMMERCIAL TAX & ORS. VERSUS CADILA HEALTH CARE LTD & ANRIN (SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOs_9788-9789 OF 2013)

Author: Aindrila Ghosh

Edited by: Madhurima Bose