Supreme Court Rules Coconut Oil as Edible Oil

Source: The post Supreme Court Rules Coconut Oil as Edible Oil has been created, based on the article “Is coconut oil an edible oil or a haircare product? Here is what Supreme Court ruled” published in “Indian Express” on 20th December 2024

UPSC Syllabus Topic: GS Paper3-Economy-taxation

Context: The article discusses how the Supreme Court decided that coconut oil should be classified as an edible oil for taxation purposes, not as a hair care product, despite being sold in small packets sometimes. This decision means coconut oil now attracts a lower Goods and Services Tax rate of 5% instead of 18%.

How was coconut oil classified earlier?

1. Before 2005: Coconut oil was broadly treated as an edible oil under tax regulations.
2. 2005 Amendment (CET Act): Coconut oil was classified under Section III as an edible oil, attracting an excise duty of 8%. Hair care products, under Section VI, were taxed at 16%.
3. 2009 Circular: The Central Board of Excise and Customs classified coconut oil in containers smaller than 200 ml as hair oil to impose a higher tax of 16%.
4. 2015 Withdrawal: The circular was withdrawn after tribunals ruled that small packs could not be presumed to be hair oil.
5. Tribunal Rulings: In challenges by companies like Madhan Agro, tribunals held coconut oil as edible oil, regardless of packaging size.

What led to the Supreme Court case?

1. In 2007, the central excise authorities issued show-cause notices to Madhan Agro Industries, questioning whether coconut oil sold in small packets should be taxed as a hair care product.
2. The company challenged this decision, leading to legal proceedings.
3. In 2015, after the Tribunal ruled that coconut oil in small packs is still edible oil, the Central Excise Commissioner appealed to the Supreme Court.
4. The case revolved around whether small-sized coconut oil should be taxed at the higher 18% rate for hair oils or the 5% rate for edible oils.

What were the Supreme Court’s views?

1. Supreme Court’s 2018 Views on Coconut Oil Taxation:

Split Verdict: The bench of Justices Ranjan Gogoi and R Banumathi delivered differing opinions:

• Justice Gogoi classified coconut oil as edible oil regardless of its packaging size, emphasizing its primary use as food.
• Justice Banumathi applied the Common Parlance Test, ruling that coconut oil in small containers is commonly understood as hair oil and should be taxed accordingly.
• The common parlance test determines how the public or market generally understands or uses a product. It is used when a product can be classified under two tax categories.

2. Supreme Court’s Recent (2023) Views:

• Classification Under HSN Norms: The court ruled coconut oil as an edible oil based on Harmonised System of Nomenclature (HSN) norms, irrespective of packaging size.
• Rejection of Common Parlance Test: The test was deemed inapplicable as the product is clearly defined under the law.
• Size Irrelevance: The court noted that small-sized packaging is common for both edible and hair oils.
• Standards of Weights and Measures (Packaged Commodities) Rules, 1977: The court referred to this rule, which allows edible oils to be packed in sizes like 50 ml, 100 ml, and 200 ml.
• Examples of Precedents: The court cited cases like homeopathic hair oil being classified as a medicament (2023) and anardana as seeds (2022) to justify its decision.

Question for practice:

Discuss the Supreme Court’s decision on the classification of coconut oil for taxation purposes.