KASARAGOD: Hard on the heels of the GST fitment panel proposing an 18% tax (from 5%) on coconut oil sold in packages less than one litre, the Finance Ministry has muddied the coconut market again with a new circular that tends to remove the difference between dried coconut and copra.
The circular issued by the Tax Research Unit of the Ministry of Finance on October 6 ostensibly 'clarifies' the differences between copra and dried coconut but exporters say the ministry deliberately obscured the definitions to encourage harassment by tax officers on the ground.
To be sure, copra, which is used for extracting oil, attracts a 5% GST while dried coconut which is of higher quality and is consumed as dry fruit is exempted from tax and also gets a 2.5% export incentive.
Justifiably, the exporters are peeved. "The government is finding newer ways to extract money," said a Kochi-based coconut dry fruit exporter. "We tried to get in touch with the Coconut Development Board but we have not received any response," the exporter, who wished not to be named, said.
The circular defines copra as dried flesh of coconut generally used for extraction of coconut oil. It also says: "Copra, classified under heading 12.03, attracts GST rate of 5%, irrespective of use."
The circular cites the Explanatory Notes-2017 of the World Customs Organisation to define copra.
But exporters and traders pointed out that the Tax Research Unit omitted the crucial part of the definition which distinguishes copra from dried coconut. According to section 12.03 of the Explanatory Notes, "copra is the dried flesh of coconut used for the expression of coconut oil and unsuitable for human consumption."
The unsuitable for human consumption part of the definition is very important because that is the part that differentiates copra from dried coconut, they said.
According to section 08.01 of the same Explanatory Notes, dried coconut in shell, without shell, or desiccated are fit for direct consumption. It is used in several north Indian states and for religious rituals in temples and imported in large quantities by countries such as Malaysia, Afghanistan, the UAE, and the UK as dry fruits. China is also a big consumer of dried coconut.
Apart from tax exemption, traders also get a 2.5% export incentive on dry coconut. "The export incentive for dried coconut, which is a niche product, was earlier 7.5%, which was brought down to 5% and further to 2.5% from January this year," said the exporter, adding that the dried coconut should be tax-free, given the fact that it's a fruit dried naturally. Copra, in contrast, is used only for extracting oil and certain levels of fungus and wrinkles are permissible. Neither it is exempted from tax nor does it get the export incentive.
"While the government promotes vegetable/fruit growers by giving tax-free status, coconut dried naturally through the sunlight should also be given tax-free status if it is sold for direct consumption. The new rule will complicate matters as it blares the distinction between the two items," the exporter said.
Without the difference of "unsuitable for human consumption" in copra, tax officials will treat copra and dried coconut as the same product. Moreover, the circular mentions, copra will attract a 5% tax irrespective of its end-use. Traders wonder how they will explain the difference between the two products. The harassment has already started.
Deepthi Nair S, deputy director (marketing), Coconut Development Board (CDB), was not available for comments.
It is learnt that the tax officials have not consulted the CDB before issuing the clarification.
Every five years, the World Customs Organisation brings out an edition of Explanatory Notes on the Harmonised Commodity Description and Coding System (HS). Tax departments, importers, exporters, and traders across the world rely on the notes on defining the products and on levying taxes. For example, an exporter will have to cite the 08.01 Harmonised System Nomenclature (HSN) code to export dry coconut.
But if the tax officials here slap a 5% GST on it, the product will have to be coded 12.03, which is for copra. "And if the product is re-coded as 12.03, the importer will not accept it saying it is copra and not dry coconut," said another exporter.
He said one product cannot have two HSN codes. "The Ministry of Finance should urgently recall the circular and re-issue a new one with the correct definition of copra as mentioned in the Explanatory Notes," he said.
According to the Coconut Development Board Act, it is the function of the board to fix grades, specifications and standards of coconut and its products.
Export figures
In the 2020-2021 financial year, India exported dried coconut worth Rs 1,130.48 crore to 40 countries.
In 2021-2022 (up to July), India exported dried coconut worth Rs 331.90 crore to 37 countries.
Malaysia is the biggest importer of dried coconut, followed by Afghanistan.
In the 2020-2021 financial year, India exported copra worth Rs 333.31 crore to 40 countries.
In the 2021-2022 financial year (up to July), India exported copra worth Rs 126.04 crore to 29 countries.
(With inputs from Rajesh Abraham/Kochi)