Edible oil or cosmetic? Small coconut oil packs pose a big tax question

livemint.com:

Subscribe to enjoy similar stories. NEW DELHI : A tiny bottle of coconut oil--Would you use it to cook up a meal, or to nourish your hair? The seemingly trivial question is close to being answered, after winding through a tax tribunal, a government department, and India's top court for over 15 years. At stake: Heavy taxes and higher prices if the product is labelled a kitchen ingredient, and potential impact on other dual-use products.

On 17 October, the Supreme Court reserved its order on whether coconut oil sold in packs up to 200ml should be taxed as edible oil or a hair care product. While edible oil attracts a goods and services tax (GST) of 5%, it is 18% for hair care products. A decision favouring such packs as hair care products could prompt manufacturers to raise prices, said Prateek Bansal, a partner at White & Brief Advocates & Solicitors.

He said this might impact affordability of smaller packs, and prompt manufacturers to adjust marketing strategies. “Moreover, the ruling could set a precedent for the classification of other multi-use products," he noted. Such products include olive oil, sesame seed oil, and peanut oil, which are used for both culinary and cosmetic purposes.

The judgement could also impact profits for consumer goods manufacturers offering such products. Read this | Flour mixes with additives attract 18% GST, clarifies Gujarat appellate authority The debate dates back to 2009, when the Central Excise and Service Tax Appellate Tribunal (Cestat) ruled that small-pack coconut oil should be classified as edible oil under Heading 1513 of the Central Excise Tariff Act. The Revenue Department challenged this, arguing they should be taxed as hair oil under Heading 3305, attracting a higher rate.