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Picture Courtesy: https://timesofindia.indiatimes.com/india/is-coconut-oil-hair-oil-or-edible-oil-supreme-court-solves-old-puzzle/articleshow/116449605.cms
The Supreme Court ruled that coconut oil should be classified as an edible oil under India's Goods and Services Tax (GST) regime and taxed at a 5% rate, rather than the 18% tax rate applied to products classified as "Preparations for use on the hair."
Under the GST structure implemented in 2017, edible oils are taxed at a lower rate of 5%, while hair care products are taxed at 18%. This created a debate over whether coconut oil be classified as an edible oil or a haircare product. The Supreme Court's decision clarified this by recognising coconut oil as edible oil.
Before the GST, coconut oil was taxed under the Central Excise Tariff Act of 1985. In 2005, the act designated coconut oil as an edible oil subject to an 8% excise duty.
In 2009, the Central Board of Excise and Customs attempted to classify coconut oil in small containers (less than 200 ml) as hair oil, subjecting it to a 16% tax rate. This circular was eventually withdrawn in 2015 due to legal challenges.
The legal battle began in 2007 when authorities served notices on companies, challenging the classification of coconut oil as edible oil and proposing a higher tax rate by classifying it as hair oil.
The Customs Excise and Service Tax Appellate Tribunal (CESTAT) ruled in favour of the companies, determining that coconut oil is edible. This decision was challenged in the Supreme Court by the Commissioner of Central Excise.
In 2018, Justices Ranjan Gogoi and R Banumathi issued a split decision. According to Justice Gogoi, coconut oil should be classified as edible oil regardless of package size. Justice Banumathi, on the other hand, argued that small containers of coconut oil were commonly understood as hair oil and should be taxed accordingly.
The Supreme Court bench, led by Chief Justice Sanjiv Khanna, ruled that coconut oil should be classified as edible oil under international standards such as the Harmonized System of Nomenclature (HSN) and the Goods and Services Tax classification.
The court explained that the "common parlance test" could only be used when a product is not clearly defined or classified under the law. As coconut oil is clearly defined as an edible oil under the law, the court determined that the common parlance test did not apply in this case.
The court observed that both edible oils and hair oils are packaged in small containers. As a result, the size of the container does not determine whether coconut oil is an edible oil or a hair care product. According to the ruling, other factors must be considered for classification as specified by law and international norms.
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The Supreme Court noted that “the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, provide that ‘edible oil’ can be packed in specific sizes of 50 ml, 100 ml, 200 ml, 500 ml, 1 litre or 2 litres”. |
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PRACTICE QUESTION Q.Consider the following statements: 1. India is the world’s largest coconut producer. 2. Tamil Nadu is the largest producer of coconut in India. Which of the above statements is/are correct? A) 1 only B) 2 only C) Both 1 and 2 D) Neither 1 nor 2 Answer: D Explanation: Statement 1 is incorrect: Indonesia leads in coconut production, producing about 17 million metric tonnes per year due to its favourable climate and vast agricultural land. The Philippines comes at 2nd with the production of 14.7 million metric tonnes. India with over 14 million metric tonnes production ranks 3rd in the world. Statement 2 is incorrect: The top three states in India that produce coconuts are:
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