Additional Commissioner of Commercial Tax v. Cadila Health Care Ltd.

What happened

The respondent, Cadila Health Care Ltd., sold GRD Powder and GRD Mix, and the High Court of Madhya Pradesh (judgment of 3 August 2011 in W.P. Nos. 3020 and 4633 of 2003) held them taxable at 8% under the residuary entry in Part VII of Schedule II to the M.P. Commercial Tax Act, 1994 for assessment year 1997-98. The department said the packs carried instructions to dilute the product with milk or water, so it was a non-alcoholic drink or beverage under entry 20(ii) of Part IV, taxable at 10%.

Questions before the court

• Is the taxable event judged by the form of the goods when sold, or by the end product that results after the buyer uses them?
• Do GRD Powder and GRD Mix fall within the entry for non-alcoholic drinks and beverages or within the residuary entry?

Why the court ruled this way

The Court held that the taxable event is the supply and that the incidence of tax depends on the nature of the goods in the form in which they are sold (paragraph 16). The later use by the consumer in preparing a drink does not alter the taxable event (paragraph 18), and entry 20(ii) says nothing about end use; it describes goods by physical characteristic and form, so the identity of the goods at the point of sale decides classification (paragraph 21). It distinguished Pioma Industries, because the entry there expressly covered powders and concentrates, and Hamdard (Wakf) Laboratories, where the sharbat was a liquid (paragraphs 26 to 28), and observed that the Legislature knew how to include powders by a deeming provision and chose not to do so here.

Controlling point

Classification is determined by the goods as they exist at the taxable event, not by a possible end product, unless the statutory entry expressly adopts a wider deeming rule.

Order and next steps

The Court held that at the time of the taxable event the goods existed as powder and biscuit and did not fall within the expression "beverage", and dismissed the appeals. Pending applications stood disposed of.

Practical implications

In a classification dispute, start with the description of the goods as sold and the words of the entry. The department cannot widen an entry by pointing to the way a buyer may eventually use the product unless the entry itself adopts an end-use test.

Limits of this ruling

• The ruling construes entry 20(ii) and the residuary entry of Schedule II to the M.P. Commercial Tax Act, 1994 for the period in question and the two products before the Court.