Coconut Oil Sold By Amway As Hair Oil, Not Classifiable As Edible Oil Under DVAT Act: Delhi High Court

The Delhi High Court has held that coconut oil sold by Amway as a hair oil cannot be classified as edible oil under the DVAT Act.

The bench of Justice Vibhu Bakhru and Justice Amit Mahajan, while ruling in favour of the department, observed that the coconut oil is sold by the appellant in small packs, is displayed in the category of hair care, the manner in which it is to be applied to hair, and the purpose for which it is purchased by the consumer leaves no manner of doubt that the coconut oil sold by the appellant is wrongly sought to be classified under Entry 25 of the Third Schedule of the DVAT Act.

The appellant is engaged in the business of resale of goods by the “direct selling method." One of the products that the appellant deals in is coconut oil, labelled “Persona Coconut Oil 100% pure edible oil."

The appellant/assessee stated that the coconut oil being sold by it was classified under Entry No. 25 of the Third Schedule appended to the DVAT Act as 'Edible Oils and Oil Cake'.

However, as per the department, the coconut oil is to be classified as a residuary item under Section 4(1)(e) of the DVAT Act.

The assessee contended that the product is labelled as Persona coconut oil, 100% pure edible oil. The reason that the product is capable of multi-usage cannot be a basis for classifying it under a residuary entry when the product is admittedly an edible oil for which a specific entry has been provided. The Act does not prescribe any entry for hair oil. Coconut oil is edible and therefore cannot be used as a residuary item because the same is used as hair oil. Coconut oil is a multi-purpose oil and is admittedly used as a cooking medium by many households. The product sold by the appellant is labelled as a food-grade item in its packaging. He also referred to the declaration on the pack of the product, which describes it as '100% pure edible oil'.

The department contended that applying the 'dominant intention test', the dominant purpose from the perspective of not only the buyers but also the seller or dealer, has to be considered, which is clearly for cosmetics. The appellant sells the oil in small, packed containers, which are used for the purpose of cosmetics since the edible oil is generally sold in large containers. When the appellant itself is selling the product as a hair oil or cosmetic and not as an edible oil for the purpose of consumption, the classification of it in the residual entry cannot be objected to.

The court noted that the main criterion for determining the classification is normally the use of the product to which it is put by the customers and the purpose for which it is generally sold. The coconut oil is purchased by consumers for use on their hair. The product is sold in small packages, which are not normally meant for cooking purposes. In popular and common parlance, the product is looked at, marketed, and bought not as an edible oil, though the same being 100% coconut oil, could be used for cooking purposes as well.

The court held that the coconut oil was wrongly classified under Entry No. 25 of the Third Schedule of the DVAT Act by the assessee.

Counsel For Petitioner: Ashok K. Bhardwaj

Counsel For Respondent: Rajeev Aggarwal

Case Title: Amway India Enterprises Private Limited Versus Commissioner, Vat, Delhi & Ors.

Citation: 2024 LiveLaw (Del) 35

Case No.: VAT APPEAL 15/2021

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