The Coconut oil story - CBEC Withdraws Section 37B Order
WE carried this story in DDT 1125 04 06 2009
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 ml 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.
Now is coconut oil packed in small containers simply coconut oil falling under 150300 or cosmetics falling under Chapter 33?
This was a major issue bothering our wise lawmakers for many years.
The Board had in Circular No. 145/56/95- CX, dated 31-8-1995, clarified 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 make 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.
This Circular was issued after the issue was discussed in the Commissioners' Conference, after an enquiry by the Director General (Anti Evasion), after consultation with the Chief Chemist and after using the Board's abundant wisdom.
In spite of this clarification, as Board Circulars receive scant respect in the field, Show Cause Notices continued to be issued and were routinely confirmed.
But in 2009, fresh wisdom dawned on the Board and they realized that the amendments made to the Tariff in 2005 had made the 1995 Circular a little out of place. So the Board withdrew the 1995 circular and clarified by a Section 37B Order in Circular No.890/10/2009 dated 3.6.2009 that coconut oil packed in small containers of sizes upto 200 ml shall be classified under heading 3305 (hair oil).
Now, the size of the container became the decisive factor. They came to this conclusion as it has been gathered that smaller packs upto the sizes of 200 ml are normally used as hair oil by the customers. It has also been reported that in small pack sizes upto 200 ml are stacked along with other hair oil care preparations/cosmetics and not in edible oil section in the retail shops. Enquiries also reveal that small packs of coconut oil displayed at the hair care shelves are used as hair oil only and the customer ask for the smaller packages or the sachets for using them as ‘hair oil'
While reporting the Circular in DDT 1125 04 06 2009, we had asked,
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!
Well, we got the answer after six years. They have withdrawn the 2009 Circular!
In 2009, Board's view was that coconut oil packed in small container of sizes upto 200 ml would be classified as hair oil. DDT had suggested that the manufacturers should put 201 ml in the packets and that 1 ml would take it out of the classification of hair oil!
After several Tribunal judgements and dismissal of Revenue appeals by the Supreme Court, the CBEC has now withdrawn the 2009 Circular and the Section 37B order contained in it.
Now the field is free to classify the product taking into consideration the facts of the case read with the judicial pronouncements. THERE IS NO BOARD CLARIFICATION.
To sum up this is what happened:
1. Till 1995, there was no Board clarification
2. In 1995, CBEC clarified that it was not hair oil.
3. In 2009, the 1995 clarification was withdrawn and it was clarified that small packets of coconut oil would be treated as hair oil.
4. The issue went up to the Supreme Court at least twice.
5. Now Board clarifies that there is no clarification.
Who created all the confusion and litigation?
But the Board deserves our thanks for withdrawing that patently wrong and illogical order in Circular No.890/10/2009 dated 3.6.2009. We told them the order was wrong on 4.6.2009; it took them only six years to realize that.
Will coconut oil be dutiable depending on where you use it -food or head?
CBEC Circular No. 1007/14/2015-CX, Dated: October 12, 2015