The Supreme Court while putting an end to the 15-years old dispute held that coconut oil classified edible oil and 5% GST is applicable.
The bench of Chief Justice Of India Sanjiv Khanna, Justice Sanjay Kumar and Justice R. Mahadevan has observed that pure coconut oil sold in small quantities as ‘edible oil’ would be classifiable under Heading 1513 in Section III-Chapter 15 of the First Schedule to the Central Excise Tariff Act, 1985, 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.
Issue Raised
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?
Deferred Opinions Of Judges
The Bench which heard these appeals earlier was divided in its opinion on the issue.
Justice Ranjan Gogoi, as theJudge then was, was of the view that coconut oil in small packings was more appropriately classifiable as edible oil under Heading 1513.
Justice R. Banumathi, on the other hand, concluded that coconut oil, packed in small sachets/containers suitable for being used as hair oil, was classifiable as such under Heading 3305.
In view of their difference in opinion, these appeals have been placed before the three judge bench.
Implications Of This Judgement
The amount involved in these appeals, viz., the excise duty, penalties, redemption fine and interest, would aggregate to over Rs. 159 crores.
When we talk about assesses it impacts FMCG industries like Marico Ltd., Mumbai, which manufactures and markets pure coconut oil as ‘edible oil’ under the name ‘Parachute’.
Taxability Of Coconut Oil : History
Prior to 28.02.2005, i.e., before amendment of the First Schedule to the Central Excise Tariff Act, 1985 (hereinafter, ‘the Act of 1985’), vide the Central Excise Tariff (Amendment) Act, 2004 [Act 5 of 2005], irrespective of the size of its packaging, coconut oil was treated as a ‘vegetable oil’ exigible to excise duty under Heading 15.03 in Chapter 15 in Section III of the First Schedule to the Act of 1985.
In terms of this classification, the Central Board of Excise and Customs, Ministry of Finance (Department of Revenue), Government of India, issued Circular No. 145/56/95-CX dated 31.08.1995, due to doubts being expressed about coconut oil packed in small containers and as to whether it would be classifiable as a fixed vegetable oil or as a cosmetic preparation under the Act of 1985.
The Board clarified that coconut oil, whether pure or refined and whether packed in small or large containers, merited classification under Heading 15.03 if it satisfied the criteria of ‘fixed vegetable oil’ in Chapter Note 3 of Chapter 15.
It was clarified that if the containers bore labels/literature indicating that it was meant for application on hair, as specified under Note 2 of Chapter 33 and/or if the oil had additives (other than BHA) or had undergone processes which made it a preparation for use on hair, as mentioned in Chapter Note 6 of Chapter 33, then the coconut oil merited classification under Chapter 33.
The Central Government was also conscious of the effects of the amendments made by the Act of 2005. Circular No. 890/10/2009-CX dated 03.06.2009 was issued by the Central Board of Excise and Customs, Ministry of Finance, Government of India, in relation to classification of coconut oil packed in small containers.
The Board clarified that when ‘hair oil’ is printed on the container/label, there can be no dispute that it is classifiable as hair oil under Chapter 33 and not as edible oil under Chapter 15.
The Board noted that Chapter Note 2 in Chapter 33 was modified with effect from 28.02.2005 and the amendment was carried out to align the Central Excise Tariff with the internationally accepted HSN. The Board further noted that in view of the amendment, the clarification issued, vide Circular dated 31.08.1995, required modification.
The Board strangely concluded that coconut oil packed in containers of up to 200 ml may be considered as generally used as hair oil and that this would bring uniformity in assessment of such oil sold in small containers, irrespective of whether its use as hair oil was indicated on the containers. The Circular dated 31.08.1995 was withdrawn and coconut oil in small quantities, up to 200 ml, was directed to be classified under Heading 3305.
Judgement By Supreme Court On Classification Of Coconut Oil
Common Parlance Test
A well settled principle of interpretation of taxing statutes is that words therein must be construed in consonance with their commonly accepted meaning in the trade and their popular meaning.
Pure coconut oil is suitable for multiple uses. That notwithstanding, when a specific heading was created in Chapter 15, viz., Heading 1513, for ‘coconut oil’ along with other oils, it would not stand excluded therefrom so as to be classified as a cosmetic product under Heading 3305 in Chapter 33 in Section VI of the First Schedule, unless all the conditions required therefor are satisfied.
Coconut Oil As Cosmetics
The court noted that mere fact that coconut oil is also capable of being put to use as a cosmetic or toilet preparation, by itself, would not be sufficient to exclude oil from the ambit of ‘coconut oil’ and subject it to classification as ‘hair oil’ as ‘coconut oil’ is name-specific.
Coconut Oil As Edible Oil
The packaging of the coconut oil in the cases on hand clearly demonstrated that it was being sold as ‘edible oil’ and all parameters that had to be met in that regard were duly complied with. 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.
Conclusion
The court stated that Shanti Coconut Oil, produced and marketed by Madhan Agro Industries (India) Pvt. Ltd., bore ‘Agmark’ certification from the concerned authorities to qualify as a Grade-I coconut oil, fit for human consumption. The fact that such edible coconut oil was sold in smaller containers would not, by itself, be indicative of it being packaging of a kind fit for use as ‘hair oil’.
The court while dismissing the appeal of the department held that the department had to adduce proper evidence and discharge that burden of proof in the context of the classification entries, which it failed to do satisfactorily in the cases on hand.
Case Details
Case Title: Commissioner of Central Excise, Salem Versus M/s. Madhan Agro Industries (India) Private Ltd.
Case No.: Civil Appeal Nos. 6703-6710 Of 2009
Date: 18/12/2023
