‘Nescafé Premix’ is Instant Coffee, Not Beverage Powder: Bombay HC upholds Lower Sales Tax Rate [Read Order]
The Bombay High Court held that Nescafé Premix is instant coffee under the Bombay Sales Tax Act and cannot be taxed as a general beverage powder, upholding the lower tax rate.
In a recent ruling, the Bombay High Court held that “Nescafé Premix” sold by Nestle India Ltd is classifiable as instant coffee and not as a general beverage powder, and that it is liable to sales tax under the specific entry for coffee carrying a lower rate of tax.
A Division Bench of Justice M.S. Sonak and Justice Advait M. Sethna ruled that the product falls under Entry C-II-3 of the Bombay Sales Tax Act, 1959, and not under the higher-taxed general entry for powders used to prepare non-alcoholic beverages.
The dispute arose from a reference made by the Maharashtra Sales Tax Tribunal at the instance of the Sales Tax Department under Section 61 of the Bombay Sales Tax Act. The reference concerned the correct classification of “Coffee and Instant Drinks Nescafé Premix” sold by Nestle India Ltd through an invoice dated 7 February 1998.
Nestle India Ltd, the respondent, was engaged in selling various consumer products, including Nescafé premix used in vending machines. Nestle approached the Commissioner of Sales Tax seeking a determination of the applicable tax rate and argued that the product was instant coffee covered under Entry C-II-3, which attracted a lower rate of tax.
The company argued that the product was known in common parlance as instant coffee and that coffee could be prepared by simply adding hot water.
The Commissioner of Sales Tax rejected this claim and classified the product under Entry C-II-18(2), which applied to powders from which non-alcoholic beverages are prepared and carried a higher rate of tax. The Commissioner relied on the composition of the product and observed that the coffee content was only 8.5 percent, with the rest comprising sugar, milk powder, and other ingredients.
The company challenged this decision before the Maharashtra Sales Tax Tribunal. The tribunal set aside the Commissioner’s order and held that the product was instant coffee covered under Entry C-II-3. Aggrieved by this decision, the Sales Tax Department sought a reference before the Bombay High Court.
Before the High Court, the department argued that the low percentage of coffee in the premix justified classification under the general entry for beverage powders. The company’s counsel argued that the percentage of ingredients was not decisive and that classification must be based on common commercial understanding.
After examining the entries and relevant case law, the High Court observed that the percentage of an ingredient is not a decisive factor for classification under taxing statutes. The court explained that products must be classified based on common parlance and market perception.
The court pointed out that the premix was sold and used to prepare Nescafé by adding hot water, and the resulting drink was understood as coffee. The court held that Entry C-II-3 was a specific entry covering coffee and instant coffee and would prevail over the general entry for beverage powders. The reference was answered in favour of Nestle India Ltd and against the Sales Tax Department, and the matter was disposed of without costs.
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