Taxability depends on nature of goods at time of sale, not end use - SC
This story was originally published at 19:41 IST on 5 October 2026
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NEW DELHI – The Supreme Court Monday held that the taxability of goods depends on the nature of the goods at the time of sale to consumers, not their end use. "... the tax authorities are bound to levy tax based on the form of the goods at the time of sale. The tax authorities are bound to look at what is supplied and not at what is the 'end use' of the good," said a bench of Justice Manmohan and Justice Arun Palli. The apex court held that GRD Powder and GRD Mix, manufactured and marketed by Zydus Lifesciences Ltd., are in the form of powder and biscuit and are taxable at 8% under the Madhya Pradesh Commercial Tax Act, 1994, not as beverages subject to 10% tax.
Citing an example, the court said that if a powder mix such as protein powder is sold, the tax applicable to powders alone can be levied. Conversely, if a ready-to-drink beverage such as bottled cold coffee or a packaged protein shake is sold, the court said the tax applicable to beverages must be imposed. The court said the consumer's subsequent mixing of the powder with water or milk to prepare a drink does not alter the taxable event, as liability is determined at the point of supply. It is equally conceivable that protein powder may be consumed in liquid form after mixing with milk or water, or alternatively, it may be used in the preparation of an Indian milk-based fudge, known as barfi, and consumed in solid form, it added.
It is settled law that taxing statutes are to be strictly construed, the apex court said. The court cannot assume any intention beyond what is manifest in the plain language of the provision, it said. Nothing can be read in or implied from the statute, and unless the language suffers from any ambiguity or absurdity, the court must adopt a literal interpretation, it added. In Entry 20(ii) Part IV, Schedule II of the 1994 Act, for attracting tax rate of 10%, the expression 'beverages' is followed by 'syrups, cordials, distilled juice, ark and essences', all of which denote liquids or liquid preparations, the court said. The common thread running through these enumerated items is that they are liquid substances capable of being bottled, stored and consumed or otherwise utilised in liquid form, it said. Further, the expression 'beverages' must derive its meaning from the class constituted by these associated words and cannot be interpreted in isolation so as to encompass goods of an altogether different character or physical form, it added.
Entry 20(ii) does not make any reference to the 'end use' of the goods, the apex court said. Consequently, the legislature has specified classification of goods not by reference to their end use, but by reference to their physical characteristics and form, the court said. Accordingly, the identity of the goods at the time of the taxable event, namely, sale, must be the determinative factor for classification under the taxing statute, it added.
The commercial tax department had argued that the indications on the goods GRD Powder and GRD Mix, both in terms of graphical representation and the accompanying instructions, require the consumer to dilute the goods with milk or water. Consequently, the department urged that the goods should be classifiable as 'non-alcoholic drinks and beverages' falling under Entry 20(ii), Part IV, Schedule II of the 1994 Act, thereby attracting tax at the rate of 10%. Zydus Lifesciences, however, contend that the goods being sold across the counter in the form of powder and biscuit are exigible to tax at the rate of 8% under the residuary entry.
Monday, shares of Zydus Lifesciences ended 0.6% lower at INR 1,139.00 on the National Stock Exchange. End
Reported by Surya Tripathi
Edited by Saji George Titus
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