Product's form at sale, not end use, will determine tax rate: Supreme Court

New Delhi: The Supreme Court has ruled that the rate of tax on a product is decided by its physical form at the time of sale to consumers rather than its end use.

"The tax authorities are bound to look at what is supplied and not at what is the 'end use' of the good," the court said, dismissing appeals by the revenue authorities who wanted to tax Cadila Healthcare's GRD Powder and GRD Mix, which exist in powder or biscuit form, at 10% rate as 'non-alcoholic drinks and beverages' under the Madhya Pradesh Commercial Tax Act, 1994.

Consequently, the classification which determines the applicable rate of tax must be based on the form of the goods at the time of sale and not on the manner in which the consumer may later choose to use it, a bench comprising Justices Manmohan and Arun Palli said.


"For instance, 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 tax applicable to beverages must be imposed," it stated.

GRD Powder and GRD Mix must be taxed at 8% as it did not fall within the expression 'non-alcoholic drinks and beverages' because, at the time of the taxable event, they existed in powder/biscuit form, the bench said.

"The subsequent use by the consumer in mixing the powder with water or milk to prepare a drink does not alter the taxable event, for liability is determined at the point of supply," it said.