Coconut Oil dutiable? – Depends on where it is used – in your food or head? CBEC's Section 37 B Order.
There used to be a small time enterprising businessman in a small town. He purchased a second hand sachet making machine for about Rs. 10,000/-. He used to buy some coconut oil from a mill and pack in sachets of 10 mls and sell them in the Railway Station. The Central Excise Intelligence caught up with him and they booked a case against him for manufacturing and clearing hair oil without payment of duty. His factory was a small room in a small house! Lakhs of rupees of duty with equal penalty got confirmed and the poor fellow simply did not know what hit him. What he could not understand was that the coconut oil in the mill where thousands of kilolitres were ‘ manufactured' and sold, was not taxable, but his few kgs when packed in a sachet became taxable. With his rustic intelligence he asked, if the mighty river Ganga is not excisable, will a bottle of water from Ganga become excisable?
Now is coconut oil packed in small containers simply coconut oil falling under 150300 or cosmetics falling under Chapter 33?
The Board had in Circular No. 145/56/95- CX , dated 31-8-1995, clarified that,
It is felt that coconut oil whether pure or refined and whether packed in small or large containers merits classification under Heading No. 1503 as long as it satisfies the criteria of ‘fixed vegetable oil' laid down in Chapter Note 3 of Chapter 15. It is also clarified that if the containers bear labels/literature, etc., indicating that it is meant for application on hair, as specified under Note 2 of Chapter 33 and/or if the coconut oil has additives (other than BHA ) or has undergone processes which made it a preparation for use on hair as mentioned in Chapter Note 6 of Chapter 33 then the coconut oil may merit classification under Chapter 33.
But Board Circulars are not generously accepted by the Field. Show Cause Notices flew around, but Tribunal in all cases that reached that level held that coconut oil, simply by being packed in a sachet will not become cosmetics.
In AMARDEO PLASTICS INDUSTRIES vs UOI - , the Tribunal observed through the Third Member,
I also note that the Board vide its Circular dated 31/08/95 has examined the entire issue of classification including the report of the Chief Chemist CRCL and has clarified that the mere fact of packing the same in small containers will not shift the classification of the same from Chapter 15 to Chapter 33.
Revenue cannot be heard arguing against its own Board's Circular.
the said Board's Circular is binding on the revenue and the fact of engaging a Senior Counsel by the revenue to defend the proceedings before the Tribunal, (as observed by Member (T)) will not change the above position of law, which stands re-affirmed by the Court in a number of subsequent decisions.
I find that the issue stands decided by the Tribunal's decision in the case of Kothari Products Ltd., Vs. CCE , Shrikanth Sachets Pvt. Ltd., Vs. CCE , - & CCE Vs. Essen Products (I) Ltd ., . It is not the revenue's case that the said decisions were appealed against by them before the higher appellate forum. Inasmuch as the same have attained finality, they are required to be allowed.
So the issue is almost settled.
But, no. No issue in Central Excise is settled; it's only a temporary lull.
Suddenly the Board has realised that the Chapter Note to Chapter 33 and Section Note to section VI of the Tariff were amended with effect from 28.02.2005 and LO and Behold! That coconut sachet has again become dutiable by falling under Chapter 33 instead of 15.
So the Board has again researched the issue and came up with astounding findings that these small packs of coconut oil are displayed at the ‘hair care' shelves in the shops and the customer ask for the smaller packages or the sachets for using them as ‘hair oil'.
So the Board issued the following instructions:
(i) The Circular No.145 /56/1995- CX , dated. 31.08.1995, stands withdrawn.
(ii) The coconut oil packed in small container of sizes upto 200 ml [better put 201 ml and avoid excise - DDT] shall be classified under heading 3305.
Now, since when is this 1995 Circular withdrawn? From Yesterday or from 1995?
If the amendment to the Tariff in 2005 changed the whole situation, why did it take the Board more than four years to react?
Who is responsible for the loss of Revenue for the last four years?
Will there be Show Cause Notices alleging that the assessee has suppressed the fact the Board is going to issue a Circular in June 2009?
Is this an invitation to go to the High Court/Supreme Court to get the Circular quashed?
What was the provocation to issue this Circular now?
Has the Board got the approval of the Minister before issuing such a clarification?
We will not get answers to these questions in the near future!
CBEC Circular No. 890/10/2009- CX , Dated : June 3, 2009