Small Bottles of Coconut Oil Classifiable as Edible, 5% GST Attracts: Supreme Court [Read Judgement]

In a 15-year-old dispute regarding the classification of small bottles of coconut oil, the Supreme Court held that small bottles of coconut oil should be classified as edible oil and taxed at 5%. The Court rejected the tax department’s demand to classify the oil as hair oil and tax it at 18%.

The Supreme Court's three-judge bench, comprising Chief Justice Sanjiv Khanna and Justices Sanjay Kumar and R Mahadevan 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.

The judgement came out as a relief to fast-moving consumer goods ( FMCG ) players such as Marico and Bajaj Consumer. This decision relieved both manufacturers and consumers, as prices of edible coconut oil could have increased if it had been classified as hair oil.

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

 The entire issue 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 the Central Excise Tariff Act, 1985.

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 on 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.

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While allowing the appeal, the bench 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.

To Read the full text of the Order CLICK HERE

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