Is a Drink Powder a “Beverage” for Tax? Supreme Court Says Classify by Form Sold, Not End Use

Case at a glance: The Supreme Court has held that tax authorities must classify goods by what is supplied, not by what the buyer eventually does with it. It dismissed the Revenue's appeal and held that protein and health powders sold under the names GRD Powder and GRD Mix could not be taxed as “non-alcoholic drinks and beverages” merely because consumers mix them with milk or water.

Cadila sold health and protein powders, GRD Powder and GRD Mix, whose packaging showed mixing with milk or water. The Revenue taxed them at 10 per cent as “non-alcoholic drinks and beverages” under Entry 20(ii), Part IV of Schedule II to the Madhya Pradesh Commercial Tax Act, 1994. Cadila argued they fell under the residuary entry at 8 per cent.

The Madhya Pradesh High Court ruled in Cadila's favour in August 2011, and the Revenue appealed. The dispute relates to an assessment year in the 1990s, which explains why the Supreme Court decided it only in 2026.

The Key Question Before the Court

Is a good classified for tax by its form at the point of sale, or by its eventual end use, such as being mixed into a drink?

Why the Supply, Not the Use, Decides the Entry

As reported, the Court held that tax authorities are bound to look at what is supplied and not at the end use of the good. The taxable event is the supply, and the incidence of tax depends on the nature of the good in the form in which it is sold.

Applying ejusdem generis, the Court noted that Entry 20(ii) lists items such as syrups, cordials and juices, all liquids; a solid powder does not become a beverage merely because a consumer can convert it into one. It rejected reliance on packaging instructions and pictures of prepared drinks, and reportedly noted that the powder could be used in other ways as well.

What the Court Actually Held

• Classification turns on the form of the good as supplied, not on its eventual end use.
• The powders were not “non-alcoholic drinks and beverages” under Entry 20(ii); the residuary entry applied.
• Packaging claims about how the product is consumed do not decide its tax classification.
• The Revenue's appeal was dismissed and the High Court's decision for Cadila stood.

Why This Judgment Matters

• It restates a core principle of indirect tax classification: look at the goods as sold.
• It limits the Revenue's ability to rely on labels, pictures and likely consumption to place goods in a higher-rate entry.
• Although decided under the old M.P. commercial tax regime, the reasoning may be persuasive in GST classification disputes.
• It shows how residuary entries apply when no specific entry covers the good in the form sold.

What Should Advocates Take Away From the Judgment?

For Assessees and Their Counsel

• Argue classification by form at the point of sale and strict construction of the taxing entry.
• Use ejusdem generis to test whether the goods resemble the other items in the entry.

For Revenue Counsel

• End-use and packaging arguments are weak; identify the entry's wording that actually covers the good as supplied.

Key Takeaways

Frequently Asked Questions

According to this ruling, no. Authorities must look at what is supplied and the form in which it is sold.

The Court agreed with Cadila that the powders were not covered by the beverages entry; reports describe them as falling under the residuary entry at 8 per cent, which should be confirmed in the judgment.

The case arose under the M.P. Commercial Tax Act, but the reasoning on form versus end use may carry persuasive weight in GST classification arguments.

Conclusion