Recently, the Delhi High Court held that Amway's coconut oil, marketed as a hair product, does not fall under the category of edible oil as defined by the DVAT Act.

The division bench of Justices Vibhu Bakhru and Amit Mahajan noted that the coconut oil sold by the appellant in small packages, positioned within the hair care section, its intended application for hair, and the consumers' purpose in purchasing it all clearly indicate that categorizing this coconut oil under Entry 25 of the Third Schedule of the DVAT Act is an incorrect classification.

The appellant conducts business through the "direct selling method" and is involved in reselling various goods. Among these products is coconut oil, marketed as "Persona Coconut Oil 100% pure edible oil." The appellant argued that the coconut oil it sells should be classified under Entry No. 25 of the Third Schedule attached to the DVAT Act, categorized as 'Edible Oils and Oil Cake.'

According to the department's perspective, the appropriate classification for coconut oil is as a residual item, falling under Section 4(1)(e) of the DVAT Act.

The assessee argued that the product, labeled Persona coconut oil, is explicitly marked as "100% pure edible oil." They emphasized that the product's versatility for multiple uses shouldn't warrant its classification under a residual entry, especially when it is acknowledged as an edible oil with a specific entry provided for it in the Act. Highlighting that the Act doesn't specify an entry for hair oil, they maintained that coconut oil, being edible, shouldn't be relegated to a residuary item just because it's also used as a hair oil.

The assessee pointed out the widespread use of coconut oil as a cooking medium in numerous households, emphasizing its multi-purpose nature. Additionally, they underscored the packaging's declaration describing the product as a "food-grade item" and highlighted the product's packaging labeling it as '100% pure edible oil.'

The department argued that employing the 'dominant intention test' necessitates considering the primary purpose, as perceived not only by buyers but also by the seller or dealer. They emphasized that the prevalent intention for this product leans toward its cosmetic use. 

They highlighted that the appellant markets the product specifically as a hair oil or cosmetic item rather than positioning it as an edible oil meant for consumption. According to the department, since the appellant themselves promote and sell the product primarily for cosmetic purposes and not as an edible oil intended for consumption, contesting its classification within the residual entry is unwarranted.

The court highlighted that the primary criteria for classification typically rely on the customers' actual use of the product and its usual purpose in sales. In this case, consumers predominantly purchase coconut oil for hair care. The product is packaged in small containers, uncommonly utilized for cooking-related purposes. It was emphasized that, in general understanding and common usage, the product is perceived, marketed, and purchased not as an edible oil, despite its composition being 100% coconut oil, which technically could also be used for cooking.

The court concluded that the assessee had inaccurately categorized the coconut oil under Entry No. 25 of the Third Schedule of the DVAT Act.

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

Case No.: VAT APPEAL 15/2021