Coconut Oil to Be Classified as 'Edible Oil' or 'Hair Oil' Based on Packaging and Use: Supreme Court
In the case Commissioner of Central Excise, Salem v. M/s Madhan Agro Industries (Pvt) Ltd., the Supreme Court ruled that pure coconut oil packaged and sold in small quantities (5 ml to 2 litres) qualifies as "edible oil" under Heading 1513 of Chapter 15 in the Central Excise Tariff Act, 1985, unless explicitly packaged and marketed as a cosmetic or "hair oil." If packaged for cosmetic purposes, it falls under Heading 3305 of Chapter 33.
The bench comprising CJI Sanjiv Khanna, Justice Sanjay Kumar, and Justice R. Mahadevan addressed whether pure coconut oil in small containers should be classified as "edible oil" or "hair oil." The matter arose from a long-standing dispute where Revenue Authorities sought to classify such coconut oil as "hair oil" to impose excise duties.
Key Findings of the Court:
1. Classification Principles: The Court emphasized that while coconut oil has multiple uses, its classification depends on the packaging and intended use. Oils under Heading 1513 cannot be reclassified as cosmetics under Heading 3305 unless they meet specific packaging and marketing criteria.
2. Packaging Requirements: To classify as "hair oil," the product must be sold in retail packaging labeled or marketed explicitly for hair care. The presence of labels or indicators suggesting cosmetic use is essential.
3. Regulatory Compliance: Edible coconut oil must:
o Be packed using edible-grade plastic.
o Comply with the Food Safety and Standards Act, 2006.
o Meet the Edible Oils Packaging (Regulations) Order, 1998.
o Satisfy specific Indian Standards Specifications for edible oil.
Background of the Case:
The dispute began with appeals filed by Revenue Authorities in 2009, contesting a Customs Excise and Service Tax Appellate Tribunal decision in favor of companies like Marico Ltd. and its job workers. The authorities argued that coconut oil sold in small packs should be taxed as "hair oil." The Tribunal’s ruling, later upheld by the Supreme Court, stated otherwise.
Marketing and Packaging Not Determinative:
The Court clarified that smaller packaging sizes do not automatically classify coconut oil as "hair oil." Factors like economic considerations or consumer preference for freshness might influence the choice of smaller packs.
Trademarks and Advertisements:
The Revenue’s reliance on trademarks and marketing strategies, such as advertisements featuring actresses with flowing hair, was deemed inconclusive. The Court noted that Marico had registered trademarks across various categories, including edible oil.
Conclusion:
The Supreme Court held that unless coconut oil is explicitly packaged and marketed for cosmetic use, it should be classified as "edible oil" under Chapter 15. This judgment resolves a 15-year-old dispute, reaffirming the importance of packaging, labeling, and intended use in product classification under the Central Excise Tariff Act.