Nescafé Premix Is Instant Coffee, Not Beverage Mix; Bombay High Court Upholds Lower Sales Tax Rate

Nescafé Premix Is Instant Coffee, Not Beverage Mix; Bombay High Court Upholds Lower Sales Tax Rate

Introduction

The Bombay High Court has held that Nescafé Premix qualifies as “instant coffee” for the purposes of sales tax classification, thereby attracting a lower tax rate of 8% instead of 16% under the Bombay Sales Tax Act, 1959. The ruling reiterates the settled principle that specific entries in a taxing statute prevail over general entries, and that classification must be guided by common parlance and consumer perception.

Factual Background

The dispute concerned the classification of Nescafé Premix, a product used in vending machines to prepare coffee by adding hot water. The product consists of approximately 8.5% soluble coffee powder, along with sugar, milk powder, and maltodextrin.

The Sales Tax Department sought to classify the product under Schedule Entry C-II-18(2) as a general non-alcoholic beverage preparation, attracting 16% sales tax, citing the relatively low coffee content. Nestlé India Ltd., on the other hand, contended that the product is commercially understood and sold as instant coffee, falling under Schedule Entry C-II-3, which attracts a lower tax rate of 8%.

Procedural Background

The Maharashtra Sales Tax Tribunal ruled in favour of Nestlé India Ltd., holding that ingredient composition is not determinative of classification and that consumer perception must prevail. Aggrieved by this decision, the Sales Tax Department filed a Sales Tax Reference before the Bombay High Court.

Issues

1. Whether Nescafé Premix should be classified as instant coffee attracting 8% sales tax, or as a general non-alcoholic beverage preparation attracting 16% sales tax under the Bombay Sales Tax Act, 1959.

Contentions of the Parties

Sales Tax Department: The Department argued that the product contained only 8.5% soluble coffee, and therefore could not be treated as coffee. It submitted that the product was essentially a beverage mix and should be taxed at the higher rate applicable to non-alcoholic drink preparations.

Nestlé India Ltd.: Nestlé contended that percentage of coffee content is irrelevant to classification. It argued that the product is marketed, sold, and consumed as instant coffee, and that the manner in which consumers understand the product must govern its tax treatment.

Reasoning and Analysis

The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna reaffirmed the principle that specific taxing entries override general ones. Applying the common parlance test, the Court held that Nescafé Premix is perceived by consumers as instant coffee, particularly since it is used exclusively for preparing coffee through vending machines by the addition of hot water.

The Court rejected the Department’s emphasis on ingredient percentage, observing that minor quantities of ancillary ingredients do not alter the essential character of a product. It relied on a series of Supreme Court decisions, including Forage & Co., Bharat Forge, Connaught Plaza Restaurant, and La Bella Products, to underline that classification depends on commercial identity and consumer understanding, not chemical composition.

The Court also noted that modern food and beverage preparations must be interpreted in light of contemporary commercial practices and consumer habits, and not through a narrow or outdated lens.

Decision

The Bombay High Court upheld the decision of the Maharashtra Sales Tax Tribunal and ruled in favour of Nestlé India Ltd. It held that Nescafé Premix is classifiable as instant coffee, attracting sales tax at the lower rate of 8%, and answered the Sales Tax Reference against the Sales Tax Department.

In this case the applicant was represented by Ms. Jyoti Chavan, Addl. G.P. Meanwhile the respondent was represented by Ms. Nikita Badheka a/w Lata Nagal.