Coconut Oil – Edible Oil or Haircare Product?

Coconut Oil - Edible Oil or Haircare Product?

The Supreme Court of India recently settled a long-standing dispute over the classification of coconut oil. The court ruled that coconut oil should be classified as an edible oil, taxed at a lower Goods and Services Tax (GST) rate of 5%, rather than the higher 18% rate applied to haircare products.

The debate over coconut oil’s classification began with the introduction of the GST regime in 2017. Before GST, coconut oil was governed by the Central Excise Tariff Act, 1985, and was classified as an edible oil. However, in 2009, a circular issued by the Central Board of Excise and Customs classified coconut oil sold in containers under 200 ml as hair oil, subjecting it to a higher tax rate.

The classification issue led to multiple legal challenges. In December 2024, a three-judge bench comprising Chief Justice Sanjiv Khanna and Justices Sanjay Kumar and R. Mahadevan ruled that coconut oil should be classified as edible oil unless explicitly packaged and marketed as hair oil. The court emphasized that packaging size alone could not determine the classification.

This ruling provides clarity for manufacturers and consumers. Coconut oil can now be marketed in small packages without facing higher taxes. This decision is expected to benefit FMCG companies and consumers by reducing costs and aligning taxation with the product’s primary usage.

The decision has been met with widespread approval in the FMCG sector. Companies have welcomed the ruling, seeing it as a major step towards clarity and fairness in taxation. Consumer advocacy groups have also praised the decision, highlighting its potential to lower the cost of coconut oil, a staple in many Indian households. Market analysts predict that the ruling will stimulate growth in the coconut oil market. While the decision has been largely positive, some in the haircare industry have expressed concerns.

Overall, the Supreme Court’s ruling has been hailed as a significant step forward, providing much-needed clarity and fairness in the classification and taxation of coconut oil. The industry and consumers alike are optimistic about the positive impacts this decision will bring.

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