SC classifies small bottles of coconut oil as edible; to be taxed at 5% GST

In relief to fast moving consumer goods (FMCG) players such as Marico and Bajaj Consumer, the Supreme Court on Wednesday ruled in a 15-year-old dispute that small bottles of coconut oil should be classified as edible oil and taxed at 5%, rejecting the tax department’s demand to classify the oil as hair oil and tax it at 18%. Goods and services tax (GST) on edible oil is set at 5% while hair oil is taxed at 18%.

 

The court, however, clarified that if coconut oil is packaged in small bottles and labelled as hair oil, it should be classified as hair oil under the Central Excise Tariff Act, 1985.

 

 

This decision came as a relief for both manufacturers and consumers, as prices of edible coconut oil could have increased if it was classified as hair oil.

 

The Supreme Court's three-judge bench of Chief Justice Sanjiv Khanna and Justices Sanjay Kumar and R Mahadevan, had reserved the judgement on October 17 in this case.

 

The issue for consideration in the appeals filed by the revenue department was whether pure coconut oil, packaged and sold in small quantities ranging from 5 ml to 2 litres, would be classifiable as “Edible oil” under Heading 1513, titled Coconut (Copra) oil, etc., in Section III-Chapter 15, or as “Hair oil” under Heading 3305, titled Preparations for use on the hair, in Section VI-Chapter 33 of the First Schedule to the Central Excise Tariff Act, 1985.

 

The court ruled that the argument of the revenue department that the fact that edible coconut oil marketed by the respondents could also be used as hair oil is, therefore, not sufficient to classify the same under Heading 3305.

 

The ruling is in favour of manufacturers such as Marico Ltd, which has the Parachute brand, and Madhan Agro, which markets its edible coconut oil under the Shanthi brand.

 

The revenue department had stated before the court that the amount involved in its appeals, such as the excise duty, penalties, redemption fine and interest, would aggregate to over ₹159 crore. The department had argued that the issue was relevant due to pendency of similar cases at various levels.

 

The entire row started when the Customs, Excise and Service Tax Appellate Tribunal (Cestat) in 2009 ruled that small-pack coconut oil should be classified as edible oil under Heading 1513 of Central Excise Tariff Act, 1985. This was against the Central Excise Commissioner’s views.

 

Madhan Agro Industries Pvt Ltd, which made 100% coconut oil in containers of up to 2 litres under the “Shanthi” brand, had challenged the show-cause notices of the Central Excise authorities proposing to levy duty treating the coconut oil sold during April 1, 2005 to August 31, 2007 as “hair oil”.

 

Similarly, Marico, which sells 100% coconut oil under the “Parachute” brand, challenged the show-cause notices of the Central Excise authorities. Marico’s appeals were allowed.