Marico gears up for excise battle

Marico Ltd, the fast moving consumer goods company that manufactures coconut oil under Parachute, Nihar and Oil of Malabar brands, may challenge changes made by the Central Board of Excise and Customs (CBEC) on excise duty levied on packaged coconut oil (CNO).

According to a recent CBEC circular, small coconut oil packs of up to 200 ml would be classified as hair oil and subject to excise duty rate of 8% as per Chapter 33 of the Central Excise Tariff rules, while bigger packs would come under vegetable oil and subject to chapter 15 with no excise duty on them.

Currently, around 70% of Marico’s CNO sales (largely Parachute) are contributed by SKUs (stock keeping units) under 200 ml. The company, in the past, on six separate occasions, has challenged such tax demands from government and won in tribunal courts. The FMCG player, however, is not expecting any material impact of this.

A note on Marico’s website said, “The stand that CNO is rightly classified under Chapter 15 as a fixed vegetable oil has been vindicated by the decisions of Appellate Tribunal benches on six separate occasions. However, recently, there have been, pursuant to a CBEC circular, some developments on the exciseability of coconut oil in small packs. The company is contemplating appropriate action in this matter in accordance with legal advice.”

Under the re-classification, if 8% excise duty on the small packs is implemented, the effective duty levy would be 5.4% on the maximum retail price post abatement and cess.

If the company is not able to challenge the circular, it will either have to take an average 3.5-4% hike across its coconut oil portfolio to pass on the excise imposition, or will have to raise the 200 ml pack size to avoid excise and take price hit on packs smaller than 200 ml. Both the possibilities will hurt Marico.

According to an Edelweiss Research report, coconut oil packs up to size 200 ml forms about 22% of Marico’s consolidated turnover. The only relief Marico has on CNO is the softening of input prices. “Copra prices have remained benign which is likely to act as buffer against any adverse eventuality for Marico over the near term,” it said.

Milind Sarwate, chief of HR and strategy, Marico Ltd told DNA Money, “It is slightly difficult for us to comment right now, as things are not very clear. It would be wise to move towards conclusions only as we get better clarity over the next few weeks.” 

Under Central Excise Tariff rules, Chapter 15 covers various types of vegetable oil including coconut oil and Chapter 33 covers cosmetics including hair oil. According to the circular, the pack sizes of up to 200 ml are generally used as hair oil. Larger packs should be treated as vegetable oil though consumers may buy them as hair oil, it said.