Commissioner of Central Excise Vs Madhan Agro Industries (India) Private Ltd. (Supreme Court)
Classification of an item under indirect taxes has always been a contentious issue owing different rates of tax attached to different classification which can be related to same article of goods based upon different criteria and basis of classification. In one of such long pending controversy, The Hon’ble Supreme Court of India has delivered a crucial judgment in Commissioner of Central Excise, Salem v. M/S Madhan Agro Industries (Civil Appeal Nos. 746-753 of 2009), vide its judgement dated 18th Dec 2024, finally settling a 15-year-old dispute regarding the classification of coconut oil for excise duty purposes. This case, involving substantial revenues and penalties amounting to Rs. 159 Crores, centered on whether pure coconut oil packaged in small quantities (5 ml to 2 liters) should be classified as “edible oil” (Heading 1513) or “hair oil” (Heading 3305) under the Central Excise Tariff Act, 1985.
The dispute originated from appeals filed by Revenue Authorities challenging a 2008 decision of the Customs Excise and Service Tax Appellate Tribunal (CESTAT). The Revenue contended that coconut oil sold in small packages, particularly by companies like Marico Ltd. (makers of “Parachute” coconut oil) and their job-workers, should be classified as “hair oil” due to its potential use for cosmetic purposes. This led to show-cause notices, duty demands, interest, and penalties. However, CESTAT ruled in favor of the companies, prompting the Revenue to appeal to the Supreme Court. A split decision by a two-judge bench of the Supreme Court delivered a split verdict on the issue in 2018. While Justice Ranjan Gogoi opined that coconut oil in small packs should be classified as edible oil i.e. without according any significance to the size or packaging, whereas Justice R. Banumathi held that such oil should be classified as hair oil under Heading 3305, mainly laying stress on the ‘Common Parlance Test’. This divergence led to a reference to a three-judge bench and ultimately the present decision by a larger bench comprising Chief Justice Sanjiv Khanna, Justice Sanjay Kumar, and Justice R. Mahadevan.
