In a pivotal decision, the Supreme Court of India ruled that the classification of pure coconut oil under the Central Excise Tariff Act, 1985, depends on its packaging and intended use. The court stated that coconut oil packaged and sold as edible oil must be classified under Heading 1513, while oil marketed explicitly as hair oil falls under Heading 3305.
The bench comprising Chief Justice Sanjiv Khanna, Justice Sanjay Kumar, and Justice R. Mahadevan delivered the judgment, dismissing appeals by the Revenue Department against companies including Madhan Agro Industries (India) Pvt. Ltd. and Marico Ltd. The court upheld the rulings of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), which had sided with the companies.
Background of the Case
The dispute revolved around whether coconut oil sold in small containers (ranging from 5 ml to 2 liters) should be taxed as edible oil or hair oil. The Revenue Department argued that small packaging is indicative of its use as hair oil, while the companies contended that it was marketed and sold as edible oil.
The matter gained significance because classification under Heading 1513 (edible oil) attracts lower excise duties compared to Heading 3305 (hair oil). The cases pertained to duties levied during 2005–2007, involving approximately ₹159 crore.
Key Legal Issues
1. Interpretation of Tariff Headings: The court examined whether pure coconut oil is classifiable under Chapter 15 (edible oils) or Chapter 33 (cosmetic and hair preparations) of the Central Excise Tariff Act, 1985.
2. Role of Packaging and Marketing: Whether packaging size and marketing as “edible oil” or “hair oil” determine classification.
3. Applicability of Harmonized System of Nomenclature (HSN): The court explored whether the tariff entries align with the HSN and its explanatory notes.
Court’s Observations
The court emphasized that classification must be based on the specific headings and explanatory notes of the Central Excise Tariff Act, which is aligned with the internationally recognized HSN. It rejected the Revenue’s reliance on the “common parlance test,” stating that such tests apply only when headings or definitions are ambiguous.
Quoting the judgment, the court observed:
“The mere fact that coconut oil is also capable of being used as hair oil does not suffice to classify it as such. It must also meet packaging and marketing criteria indicating its specific use as a cosmetic preparation.”
Decision
The court concluded that coconut oil sold in retail packaging as edible oil and conforming to food safety standards cannot be reclassified as hair oil solely based on the size of the containers. However, if packaging or labeling explicitly indicates cosmetic use, such oil would fall under Heading 3305.
Case Details
– Case Numbers: Civil Appeal No. 1766 of 2009 and Civil Appeals Nos. 6703-6710 of 2009
– Appellant: Commissioner of Central Excise, Salem
– Respondents: Madhan Agro Industries (India) Pvt. Ltd., Marico Ltd., and its job workers
