Supreme Court Rules Coconut Oil in Small Packages is Edible Oil
In a significant ruling that resolves a 15-year dispute, the Supreme Court held on Wednesday that coconut oil packaged in small containers can be classified as edible oil, which will therefore attract lower taxes compared to non-edible oils. The apex court clarified that if coconut oil is packaged in small bottles and labeled for use on hair, it would then be classified as hair oil under the Central Excise Tariff Act of 1985.
Since the implementation of the Goods and Services Tax (GST) regime in 2017, the GST on edible oil is set at 5%, while the tax rate on hair oil is considerably higher at 18%. This decision has been welcomed by fast-moving consumer goods (FMCG) players like Marico and Bajaj Consumer, as coconut oil manufacturers can now benefit from the lower GST rate of 5% for edible oils.
The ruling comes after a three-judge bench, consisting of Chief Justice Sanjiv Khanna and Justices Sanjay Kumar and R. Mahadevan, rejected appeals from the tax department that argued for classifying coconut oil sold in small packages as hair oil. The judgment stated, “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 meets specific requirements outlined in Chapter Note 3 in Section VI – Chapter 33 of the First Schedule to the Central Excise Tariff Act, 1985.
The court further noted that small-sized containers are common to both edible oils and hair oils; hence, additional distinguishing factors are necessary for categorization. The mere capability of coconut oil being used as a cosmetic or toilet preparation was determined to be insufficient grounds for reclassification.
For coconut oil to be labeled as edible, it must be packed in containers made of edible-grade plastic and comply with the Food Safety and Standards Act of 2006. Moreover, the oil must conform to the Edible Oils Packaging (Regulations) Order of 1998 and meet distinct Indian Standards Specifications, which vary from those for hair oil. Notably, the Standards of Weights and Measures (Packaged Commodities) Rules of 1977 specify container sizes ranging from 50 ml to 2 liters for edible oil.
The Revenue department had argued that Shanti Coconut Oil was marketed in containers featuring a popular film actress, implying that the oil was intended for hair use rather than consumption. However, the Supreme Court observed that such advertising alone is not determinative of the oil’s classification.
This legal battle traces back to eight appeals filed by the department in 2009 concerning events from February 2005 to February 2007. Four of the appeals were linked to Marico Ltd., which markets pure coconut oil under the name ‘Parachute.’ The remaining appeals involved Puducherry-based job-workers who repackaged the coconut oil into smaller containers. Following a series of orders affirming the higher classification as hair oil, the companies successfully appealed to the Customs Excise and Service Tax Appellate Tribunal.
The matter reached the Supreme Court after a split verdict from a two-judge bench in 2018. The case has now been conclusively ruled, favoring the classification of coconut oil in small packages as edible oil, thereby easing the tax burden on manufacturers and consumers alike.
Radhika Goyal is Author of Taxconcept Gurugram head office, for deeply reported tax, gst and income tax articles on issues that matter. He splits her time between New Delhi and Bengaluru, and has worked as a reporter, a podcaster and an editor for publications across India.