Coconut Oil Taxation in India

The Supreme Court in its recent judgement has ruled that coconut oil in small bottles should be taxed as edible oil (5% GST) unless explicitly labeled and marketed as hair oil, which would attract an 18% GST.

Coconut Oil Taxation in India

Background: The dispute was on whether coconut oil, packaged in quantities from 5 ml to 2 litres, should be taxed as edible oil or hair oil
Prior to GST Regime:
- Taxation Under the CET Act, 1985: Prior to GST, coconut oil was taxed under the Central Excise Tariff Act, 1985 (CET Act).
- In 2005, the CET Act classified coconut oil under Section III as “Animal or Vegetable Fats and Oils” with an 8% excise duty, distinguishing it from haircare products under Section VI, which carried a 16% excise duty.
- These classifications followed international norms set by the Harmonised System of Nomenclature (HSN) by the World Customs Organisation.

World Customs Organisation (WCO)

It is an Intergovernmental organisation, it was established in 1952 as the Customs Co-operation Council (CCC). It was renamed in 1994. (HQ – Brussels, Belgium)
It represents 186 customs administrations across the globe that process approximately 98% of world trade.
India joined WCO in 1971. The Central Board of Indirect Taxes and Customs (CBIC) is India’s nodal agency for WCO.
Functions:
- Simplify and harmonize customs systems and procedures
- Improve customs operations
- Promote cooperation between governments to facilitate international trade

Harmonized System of Nomenclature Code (HSN)

It is a six-digit identification code developed by WCO in 1988. It helps in systematic classification of goods across the globe.

Coconut Oil Taxation in India_4.1

After introduction of GST:
- Coconut oil was categorized under edible oils, attracting a 5% tax.
- Haircare products under the category “Preparations for use on the hair” continued to attract a higher tax rate of 18%.

Facts

Coconut oil is extracted from the dried and crushed coconut endosperm, called copra, by pressing and crushing.
Copra has the highest Minimum Support Price (MSP) among all MSP crops.
Major coconut-producing states of India: (1) Kerala (2) Karnataka (3) Tamil Nadu.
Major coconut producing countries: (1) Indonesia (2) Philippines (3) India (4) Brazil