Coconut hair oil marketers are taking up the cudgels against a recent suggestion of the Central Board of Excise and Customs (CBEC) to impose 8% excise on coconut oil packs below 200 ml. Coconut oil is currently classified as a vegetable oil under Chapter 15 of central excise tariff rules and attracts zero excise.
The CBEC, in a circular on June 3, has intimated imposition of the excise under Section 37B of the Central Excise Act, 1944. According to the circular, packs of 200-ml or less would be classified as hair oils for cosmetic use, and thus attract an excise.
The impact on the Rs 1,500-crore cosmetic sector of the branded coconut oil industry would be huge, Paul Francis of KLF Oil Industries told FE. ?The excise would put the smaller pouches in an entirely new category and attract state VAT and CST on intra-state transportation. The final burden of the tax would be around 25% and a 200 ml pack would get costlier by Rs 6-7,? Francis added.
?The tax will have a cascading effect on the smaller packs and out price coconut oil against other oils,? said Minnie Mathew, chairperson of the state-run Coconut Board told FE. Since the competing substitutes in the cosmetic oil market ? such as mustard and sesame ? are still exempt from excise, sales of low unit packs of coconut oil is bound to skid. Most branded coconut hair oils are available in 50 ml and 100 ml packs.
Marico Ltd, the leader in the coconut hair oil category, which claims a 55% market share, is mulling legal recourse to challenge changes suggested by the CBEC on excise duty levied on packaged coconut oil. The company manufactures and markets coconut oil under the brands Parachute, Nihar and Oil of Malabar.
A spokesperson for the company said, ?The company is contemplating appropriate action in this matter in accordance with legal advice. The current facts and the advice received by us as of now seem to suggest that the net financial impact of these developments is unlikely to be material. However, it would be wise to move towards conclusions on this matter only as we get better clarity over the next few weeks.?
Analysts feel, players such as Dabur and Shalimar may choose to wait and watch as they have smaller shares in the market. ?All said, companies are unlikely to absorb the entire impact of the excise and will pass it on to the consumer in the form of higher prices. What you will also see is a lot of packaging innovation,? says a Delhi-based marketing executive with an FMCG company.