Supreme Court Rules Coconut Oil as Edible Oil

Why in the news?

The Supreme Court clarifies that coconut oil, regardless of packaging, should be classified as an edible oil and taxed at the lower GST rate of 5%.

Supreme Court Rules Coconut Oil as Edible Oil

Background and Tax Classification of Coconut Oil:

  • Issue: The debate over whether coconut oil should be classified as an edible oil or a hair care product has been ongoing for over 15 years. This is significant because edible oils attract a lower Goods and Services Tax (GST) rate of 5%, while hair care products are taxed at 18%.
  • Historical Taxation: Prior to the GST regime (2017), coconut oil was governed by the Central Excise Tariff Act, 1985, which classified coconut oil under vegetable oils for excise duty at 8%. Products for hair care, such as hair oil, were taxed at 16%.
  • In 2009, the Central Board of Excise and Customs classified coconut oil in small packets (<200 ml) as hair oil for higher taxation, but this decision was reversed in 2015.

Legal Dispute and Court Proceedings:

  • The Case: In 2007, Madhan Agro Industries challenged the excise authorities’ decision to classify coconut oil as a hair care product, arguing that it was an edible oil. The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled in favor of the company, stating that coconut oil is an edible oil.
  • SC Intervention: The case reached the Supreme Court (SC) in 2018, where a split verdict was delivered. One judge ruled that coconut oil should be classified as edible oil, while the other judge applied the Common Parlance Test and argued that coconut oil in small packs was perceived as hair oil.

Supreme Court’s Final Ruling:

  • SC Verdict: On December 19, 2024, the Supreme Court ruled that coconut oil should be classified as an edible oil for taxation purposes. The Court emphasized that international Harmonised System of Nomenclature (HSN) norms and specific legal provisions take precedence over market perceptions or packaging size.
  • Key Reasoning: The Court rejected the Common Parlance Test in this case, stating that the size of the packaging alone is insufficient to classify a product as a hair oil. The ruling ensures that coconut oil remains taxed at the lower 5% GST rate, regardless of the packaging.

Sources Referred:

PIB, The Hindu, Indian Express, Hindustan Times