It is logical that the per-unit cost of a commodity sold in bulk is lower than when sold in smaller quantities. However, the difference ideally shouldn’t be very significant. For example, if a 1-litre pouch of coconut oil costs ₹60, a 100 ml pouch should cost around ₹6.50, if not just ₹6. But due to government tax laws, it ends up costing much more.

Here’s how:

Pure coconut oil is widely used across India as a hair oil (for cosmetic purposes), but in coastal Karnataka and Kerala, it is also commonly used for cooking (edible purposes). Edible items are considered essential commodities and are generally taxed less. However, to distinguish the intended usage of pure coconut oil, the government has introduced a questionable classification system.

According to this system:

• Packets above 200 grams are assumed to be for edible purposes and attract no excise duty, and only 4% VAT.
• Packets of 200 grams or less are assumed to be for cosmetic use and attract 8.24% excise duty and 13.5% VAT, totaling approximately 22.85% combined tax.

This means a 100 ml pouch that would cost ₹6.50 without tax now costs ₹8 after tax—effectively ₹80 per litre. Meanwhile, a 1-litre pack priced at ₹60 before tax becomes ₹62.40 after tax. That’s a difference of ₹17.50 or 28%!

Why is this problematic?

Lower-income consumers, such as daily wage workers who use coconut oil for cooking, typically purchase in small quantities. They end up paying 28% more for an essential commodity simply because of the packaging size. In effect, the government is imposing a heavy tax burden on those who are least able to afford it—when it should be doing the opposite.

This tax disparity creates an opportunity for unorganized coconut oil manufacturers to evade taxes and sell at significantly lower prices, gaining a clear 23% price advantage over branded, organized players. Consumers in this segment are extremely price-sensitive and easily switch brands for even a small difference in price. How can branded companies fairly compete in such an environment?

A more rational classification would be to assess whether a product adheres to food safety standards—specifically, compliance with the Prevention of Food Adulteration Act (PFA) and possession of an Edible Oil Packing (EOP) License. Brands that follow these standards and hold the appropriate licenses should be classified as selling essential goods and should therefore enjoy lower tax rates, regardless of packet size.

Related news article on the same issue – Marico to move court on the coconut oil excise notice, Dabur may follow suit.