The Supreme Court settled a 15-year dispute, classifying small-packaged coconut oil as edible oil with a lower 5% GST, unlike the 18% levied on hair oil. This benefits FMCG companies and consumers. The court clarified that coconut oil labelled for hair use, even in small bottles, would be considered hair oil.
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NEW DELHI: After 15 years of debate, the Supreme Court of India ruled that coconut oil sold in small packages can be classified as edible oil, attracting lower taxes compared to non-edible oils.
However, if labeled specifically for hair care, it will be categorized as hair oil under the Central Excise Tariff Act, 1985.
The case has implications for the Goods and Services Tax (GST) system, introduced in 2017. Currently:
- Edible oil attracts a GST rate of 5%.
- Hair oil attracts a GST rate of 18%.
This decision benefits consumers and companies, such as Marico and Bajaj Consumer, as they can now enjoy reduced taxes for edible coconut oil.
Rejecting the tax department’s appeals, the bench of CJI Sanjiv Khanna, Justice Sanjay Kumar and Justice R Mahadevan declared:
“…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 court emphasized that the size of the packaging alone cannot determine classification. Coconut oil can be either edible oil or hair oil, but distinguishing features like labeling and packaging are essential.
The court specified several criteria for classifying coconut oil as edible:
- Packaging: It must be sold in containers made from edible-grade plastic.
- Standards Compliance: It should meet the requirements of the Food Safety and Standards Act, 2006, and the Edible Oils Packaging (Regulations) Order, 1998.
- Shelf Life: Edible oil typically has a shorter shelf life than cosmetic oils.
- Packaging Sizes: As per the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, edible oil must be packed in specific sizes like 50 ml, 100 ml, 200 ml, 500 ml, 1 liter, or 2 liters.
The judgment further elaborated:
“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 Revenue argued that marketing plays a crucial role in classification.
They cited the example of “Shanti Coconut Oil,” which used images of a popular film actress with long, flowing hair on its containers, implying that it was marketed as hair oil. However, the court responded:
“However, such an advertisement is not conclusive, in itself, to classify the oil as ‘hair oil.’”
The dispute initially saw a split verdict by a two-judge bench in 2018:
- Justice Ranjan Gogoi (retd) believed that coconut oil in small packages was edible oil.
- Justice R Banumathi (retd) ruled it was hair oil due to its packaging.
This disagreement led to the referral of the case to a three-judge bench, resulting in the recent judgment.
The ruling brings clarity and relief to manufacturers, enabling them to enjoy tax benefits for coconut oil classified as edible. For consumers, this means potential cost savings on coconut oil intended for culinary use.
This landmark decision resolves a decade-and-a-half-old taxation ambiguity, setting a precedent for future cases involving product classification based on packaging, labeling, and intended use.
CASE TITLE:
Commissioner of Central Excise, Salem v. M/s Madhan Agro Industries (Pvt) Ltd
Click Here to Read Previous Reports on CJI Sanjiv Khanna
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