The GST Council may have put off a proposal to tax coconut oil sold in pack sizes below one litre at 18% instead of 5% levied on edible oils, but industry observers are puzzled at the idea as similar moves in the pre-GST tax regime had been challenged successfully.
The Council’s Fitment Committee had recommended that coconut oil, packed and sold in containers less than one litre should be classified as hair oil, and taxed at the 18% rate levied on personal care items, while the 5% GST could continue for the same oil when sold in containers of one litre or more.
Tamil Nadu Finance Minister P. Thiagarajan had earlier slammed the GST fitment committee’s suggestion as one made ‘in bad faith’ that was against southern States with particularly adverse effects for poor consumers who may not be able to buy oil in larger quantities.
In 2009, the erstwhile Central Board of Excise and Customs (CBEC) had issued a circular that proposed to classify small coconut oil packs of up to 200 ml as hair oil, subject to excise duty of 8%, while treating bigger packs as vegetable oil with no excise duty on them.
At the time, such smaller coconut oil packs accounted for nearly a quarter of FMCG player Marico’s turnover, and the CBEC circular was issued despite Tribunal benches holding that coconut oil is a vegetable oil.
In a research note on the issue, JM Financial analysts Richard Liu and Vicky Punjabi said the move seemed to be a replay of the ‘excise on small-packs’ issue all over again, which Marico had in the past challenged in the court and won a verdict in its favour.
“We are not sure what would prompt the Council to re-consider this issue all over again, especially since the matter seemed well-settled in the court and also after rather long deliberations on what should be the appropriate GST rates for various categories of goods, prior to the implementation of the GST in mid-2017,” said the note.
Such a tax rate structure ‘is quite unlikely to be implemented’ now that the matter is being examined further from the point of view of the impact on coconut farmers, given the broader context of ‘protection of farmers’ interests’, the analysts said.
