Tax classification depends on goods’ form at sale, not their subsequent use.

The Respondents manufactured and sold “GRD Powder” and “GRD Mix” in powder and biscuit forms. The Madhya Pradesh tax authorities argued that the products were non-alcoholic drinks or beverages under Entry 20(ii), Part IV, Schedule II of the Madhya Pradesh Commercial Tax Act, 1994 (“1994 Act”), taxable at 10%, relying in part on packaging instructions to mix them with milk or water. The Respondents maintained that the goods, as sold, fell under the residuary entry and were taxable at 8%.

The High Court upheld classification under the residuary entry, and the tax authorities appealed.

The judgment also records distinct phases of the 1997–1998 assessment year under the Entry Tax Act, 1976, including a period in which Entry 14 for non-alcoholic drinks and beverages competed with that Act’s residuary entry.

1. Whether the taxable event and classification depend on the goods’ form at the time of sale or on the end product or use after sale.

2. Whether “GRD Powder” and “GRD Mix” are classifiable as non-alcoholic drinks or beverages under Entry 20(ii), Part IV, Schedule II of the 1994 Act, or under the residuary entry.

Taxing statutes must be strictly construed according to their plain language; a court may not add to or imply words in an unambiguous taxing provision (*Mathuram Agrawal v. State of Madhya Pradesh*).

The taxable event is the supply, and classification is determined by the nature and form of the goods at the time of sale, not by the consumer’s subsequent use.

Entry 20(ii) covers non-alcoholic drinks and beverages and lists syrups, cordials, distilled juices, ark and essences; under *ejusdem generis*, “beverages” is construed in the context of those associated items.

Goods not covered by a specific entry fall under the residuary entry; they cannot be placed in an inapposite specific entry merely to attract a higher rate.

The Court distinguished *Pioma Industries v. State of Kerala* because the entry there expressly included powders and concentrates, and *S. Samuel M.D., Harrisons Malayalam v. Union of India* because it did not concern whether tea leaves in powder form were beverages.

It also distinguished *Hamdard (Wakf) Laboratories v. Commissioner, Commercial Tax, U.P.* because the sharbat in that case was liquid, and held that “including” does not make Entry 20(ii) all-encompassing.

The Court treated the goods’ form at the point of sale as determinative. Although the products could be mixed with milk or water to make a drink, or used in a solid preparation, those possible uses did not change the fact that they were sold as powder and biscuits.

Entry 20(ii) did not refer to end use, and its associated examples indicated liquid substances or preparations. The Court therefore declined to use common-parlance, functional-character or basic-nature tests to import an end-use criterion contrary to the entry’s language.

As the products did not answer the description of a beverage, they belonged under the residuary entry.

Their classification under the residuary entry, taxable at 8%, was upheld.

The appeals were dismissed, and pending applications, if any, were disposed of.