Putting to rest a 15-yr old dispute, the Supreme Court on Wednesday held that coconut oil in small packages can be classified as edible oil, and will, therefore, attract lower taxes compared to non-edible ones.
However, the apex court clarified that if coconut oil is packaged in small bottles and labelled for use on hair, it would be then classified as hair oil under the Central Excise Tariff Act, 1985. The erstwhile excise duty regime has now been subsumed under the Goods and Services Tax regime post 2017, and the GST on edible oil is 5%, whereas the rate of tax on hair oil is 18%.
The ruling comes as a huge relief for the FMCG players like Marico and Bajaj Consumer and also consumers as the coconut oil manufacturers can now benefit from the lower GST rate of 5% for edible oils, compared to 18% for hair oils.
Rejecting the tax department’s appeals to classify coconut oil sold in small packages as hair oil, a three-judge bench comprising chief justice Sanjiv Khanna and justices Sanjay Kumar and R. Mahadevan ruled that “…pure coconut oil sold in small quantities as ‘edible oil’ would be classifiable under Heading 1513 (edible oil) in Section III-Chapter 15 of the First Schedule to the Central Excise Tariff Act unless the packaging thereof satisfies all the requirements set out in Chapter Note 3 in Section VI-Chapter 33 of the First Schedule to the Central Excise Tariff Act, 1985, read with the General/Explanatory Notes under the corresponding Chapter Note 3 in Chapter 33 of the Harmonized System of Nomenclature, whereupon it would be classifiable as ‘hair oil’ under Heading 3305 in Section VI Chapter 33 thereof.”The judgment noted that small-sized containers are a feature common to both ‘edible oils’ as well as ‘hair oils’. Therefore, there must be something more to distinguish between them for classification of such oil, be it under Chapter 15 or under Chapter 33, other than the size of the packing.
According to the apex court, the mere fact that coconut oil is also capable of being put to use as a cosmetic or toilet preparation, by itself, would not be sufficient to exclude such oil from the ambit of ‘coconut oil’ and subject it to classification as ‘hair oil’ as ‘coconut oil’ is name-specific.
“Edible coconut oil requires to be packed in containers using edible grade plastic. The coconut oil so sold must satisfy the requirements of the Food Safety and Standards Act, 2006, and be packaged in conformity with the Edible Oils Packaging (Regulations) Order, 1998. Further, edible oil would have a shorter shelf life than oil meant for cosmetic purposes and must meet the Indian Standards Specifications prescribed for edible oil which are different from the standards for hair oil. Significantly, the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, provide that ‘edible oil’ can be packed in specified sizes of 50 ml, 100 ml, 200 ml, 500 ml, 1 litre or 2 litres,” the judgment noted.
The Revenue had stressed that Shanti Coconut Oil was marketed in containers depicting a popular film actress with flowing tresses and thus in the light of such marketing, the oil sold was obviously meant for use as ‘hair oil’ and not as ‘edible oil’. “However, such an advertisement is not conclusive, in itself, to classify the oil as ‘hair oil,’ the SC observed.
Eight appeals pertaining to the period February 2005 to February 2007 were filed by the department in the SC in 2009. Four of these appeals related to M/s Marico Ltd, which manufactures and markets pure coconut oil as ‘edible oil’ under the name ‘Parachute.’ The remaining four appeals related to its Puducherry-based job-workers M/s. Aishwarya Industries, M/s. Moreshwar Industries, M/s. Shivam Enterprises and M/s. Sowparnika Enterprises – who received its coconut oil in bulk and sold the same after packing in small containers, ranging from 50 ml to 2 litres. Show-cause notices were issued in July 2007 by the Central Excise authorities proposing to treat the coconut oil so sold by them as ‘hair oil.’ In 2008, the orders were confirmed and excise duty with interest and penalty was levied on the four job-workers and Marico. On appeal, the Customs Excise and Service Tax Appellate Tribunal had ruled in favour of the companies. The Revenue had then filed appeals in the top court.
A split verdict by a two-judge bench in 2018 led to the matter being referred to a three-judge bench. While Justice Ranjan Gogoi (retd) had then opined that coconut oil in small packings was more appropriately classifiable as edible oil, Justice R Banumathi (retd) had then concluded that coconut oil, packed in small sachets/containers suitable for being used as hair oil, was classifiable as such under Heading 3305.
