SC Rules Coconut Oil Used as Edible Attracts 5% GST, While Hair Oil is Taxed at 18%

The Apex court putting to rest a 15-year-old dispute carried that coconut oil in small packages can be categorized as edible oil, and will, thus, draw lower taxes compared to non-edible ones.

The Supreme Court said that if the coconut oil is packaged in small bottles and labelled for use on hair then it shall be categorized as hair oil under the Central Excise Tariff Act, 1985.

Under the Goods and Services Tax regime, the erstwhile excise duty regime has now been subsumed after 2017 and the GST on edible oil is 5% in which there is an 18% tax on hair oil.

For the FMCG players like Marico and Bajaj Consumer, the ruling comes as a relief, and also consumers as coconut oil manufacturers can take advantage of the lower GST of 5% for edible oils, compared to 18% for hair oils.

Rejecting the appeals of the tax department to categorize coconut oil sold in small packages as hair oil, a three-judge bench including chief justice Sanjiv Khanna and justices Sanjay Kumar and R. Mahadevan held 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 ruling marked that small-sized containers comprise a feature common to both edible oils and hair oils. Hence there should be something additional to make the difference between them for the categorization of such oil, be it under Chapter 15 or under Chapter 33, apart from the size of the packing.

As per the Supreme Court the only fact that coconut oil can be used as a cosmetic or toilet preparation through itself shall not be enough to not include such oil from the ambit of coconut oil and within the category of hair oil’ as ‘coconut oil’ is name-specific.“Edible coconut oil is required to be packed in containers using edible-grade plastic.

The coconut oil that is sold should fulfill the needs of the Food Safety and Standards Act, of 2006, and be packaged in conformity with the Edible Oils Packaging (Regulations) Order, 1998.

Additionally, edible oil shall hold a shorter shelf life compared to oil-directed for the cosmetic objectives and should satisfy the Indian Standards Specifications mentioned for the edible oil which varies from the standards for hair oil.

Read Also: GST AAR: 5% Tax Applies to the Supply of Dry Coconut, Copra, & Shell

The Standards of Weights and Measures (Packaged Commodities) Rules, 1977, furnishes that the edible oil could be packed in the mentioned sizes of 50 ml, 100 ml, 200 ml, 500 ml, 1 litre or 2 litres, the judgment noted.

The revenue outlines that Shanti Coconut Oil was marketed in containers representing a popular film actress with flowing tresses and therefore under such marketing, the oil sold was 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 noted.

Eight appeals related to the period February 2005 to February 2007 were submitted via the department in the SC in 2009. Four of these appeals are pertinent to M/s Marico Ltd which makes and markets pure coconut oil as an edible oil under the name Parachute.

The left 4 appeals are pertinent to its Puducherry-based job-workers M/s. Aishwarya Industries, M/s. Moreshwar Industries, M/s. Shivam Enterprises and M/s. Sowparnika Enterprises – received its coconut oil in bulk and sold it after packing it in small containers, varying from 50 ml to 2 litres.

The Central Excise authorities has issued Show-cause notices in July 2007 seeking to treat the coconut oil so sold by them as ‘hair oil.’

The orders in 2008 were confirmed and excise duty with interest along with a penalty was imposed on the four job workers and Marico. The Customs Excise and Service Tax Appellate Tribunal on the plea had ruled in the company’s favour.

Appeals were filed by the revenue in the Supreme Court. A split verdict by a two-judge bench in 2018 directed the case to be referred to a three-judge bench.

However, Justice Ranjan Gogoi (retd) had expressed that coconut oil in small packings was categorized as edible oil, thereafter Justice R Banumathi (retd) concluded that coconut oil, packed in small sachets/containers appropriate for being used as hair oil, was classifiable as such under Heading 3305.