This is the letter that we submitted to the Industry Chamber and hence to the Government of Karnataka to clear many of the anomalies in Value Added Tax for Coconut Oil in Karnataka. Majority of these issues are brought out in an earlier post.

To,

The President
Puttur Chamber of Commerce and Industry

Subject:- Revision of Value Added Tax rates for Coconut Oil as Edible Oil

Respected Sir,

The Union budget and the State budget are coming up shortly. As part of the Coconut Oil Industry, we request the Government to

Reduce the Value Added Tax rates for Coconut Oil from present levels (5%)
Consider coconut oil sold in all quantities (above/below 200 gms) for edible purposes and apply the same rate (instead of 5% and 13.5%)

The following are the points considered to arrive at the above conclusion

• Coconut Oil is a prime cooking oil not only in Kerala but also in coastal Karnataka.
• Neighbouring states of Kerala and Tamil Nadu don’t have any taxes for Coconut Oil. Meanwhile, in Karnataka, VAT is 5% for quantities above 200 grams and 13.5% for quantities equal to and below 200 grams.
• Under such high tax regime, business that pay taxes can’t compete with businesses that don’t pay taxes. So the market is flooded with adulterated and lower quality products.
• Various research has shown that Coconut Oil is good for the heart and health, so it should be promoted for use in cooking.
• Since the price of coconut oil is higher, other edible oils such as palm oil, sunflower oil and soybean oil are being imported without any customs duty and is becoming a threat to indigenous coconut industries and farmers.
• While other edible oils are trading with lesser taxes, coconut oil with higher taxes is not having a level playing field.
• Weaker sections of the society who earn daily wages and have to spend for their daily food prefer to buy their cooking oil in smaller quantities like 50 ml, 100 ml and 200 ml. These are now taxed at a whopping 13.5%!
• Prices of the essential commodities like coconut oil and coconuts have doubled over last one year and is becoming less affordable to majority i.e. middle and lower class consumers.
• We manufacture coconut oil for edible purpose, we follow the Prevention of Food Adulteration guidelines and have obtained Edible Oil Packing license for the same. But the products we sell attract taxes that are meant for cosmetic items and not edible items.
• Being an essential commodity, the market is extremely price sensitive and any reduction in taxes will benefit the farmers and lower class consumers tremendously.

Request you to kindly communicate the matter to the respective government departments for taking necessary steps and actions.

Thanking You,

Yours faithfully,

For Cocoguru Coconut Industries Pvt. Ltd.

B. Keshava Ram

Managing Director

Update on 25th February 2011 – Karnataka Government hikes tax rates for goods presently taxed at 13.5% to 14%

Update on 1st August 2012 – Rate is again hiked from 14% to 14.5% with effect from August 1st 2012 to July 31st 2013

Edible Oils are in 3 forms on the basis of processing, viz. Crude Oil, Refined Oil and Vanaspati. The uninitiated, based on the terms used, will perceive

• Crude Oil is natural and not yet fit for consumption
• Refined Oil is improved and made perfect for consumption
• Vanaspati, in Sanskrit, means ‘lord of forest’, should be very healthy

This is where consumers are misguided by the names and their literal meanings. The fact, though is

• Crude Oil Oil that is just filtered after extracting OilOil from the oil seed is the healthiest. Unrefined oils still have healthy bioactive components, such as Vitamin E, flavour, and aroma.
• Refined OilOil is highly processed with the use of chemicals and heat to just retain the OilOil. Even oils extracted from lower quality oil seed can be refined. So, refined OilOil though pure is not as healthy as corresponding crude/unrefined OilOil.
• Vanaspati is formed by partial hydrogenation of refined vegetable oil is extremely harmful. They have Trans fats which are formed as a by product of hydrogenation.

In India, of the total 13 million tons of edible OilOil consumed, 10% is in the form of Vanaspati and 45% each in refined and unrefined form. Doctors and Health Departments warn consumers against intake of saturated fats, but the real culprit for all the heart problems and obesity are trans fats. Chemical analysis of trans fats gives a logical reason why trans-fats are harmful.

Chemistry of Fats
Fatty acids are characterized as either saturated or unsaturated based on the presence of double bonds in their structure. If the molecule contains no double bonds, it is said to be saturated; otherwise, it is unsaturated to some degree. Saturated fat has no double bonds, has the maximum number of hydrogens bonded to the carbons, and, therefore, is “saturated” with hydrogen atoms. The more double bonds in the fatty acid, the more vulnerable it is to rancidity, as free radicals attack double bonds.

In most naturally occurring unsaturated fatty acids (and all saturated fatty acids), the hydrogen atoms are on the same side of the double bonds of the carbon chain (cis configuration — from the Latin, meaning “on the same side”). However, partial hydrogenation reconfigures most of the double bonds that do not become chemically saturated, twisting them so that the hydrogen atoms end up on different sides of the chain. This type of configuration is called trans, from the Latin, meaning “across.” The trans conformation is the lower energy form and is favoured when catalytically equilibrated as a side reaction in hydrogenation.

The trans configuration is straighter, while the cis configuration is noticeably kinked. Trans fats have a much higher melting point (45 °C) due to the ability of the trans molecules to pack more tightly, forming a solid that is more difficult to break apart. This notably means that it is a solid at human body temperatures (37 °C).

In essence, hydrogenated oil/trans fats are stable making the food products last longer and are solids at body temperature making it harder to digest.

Why Hydrogenate?
Hydrogenated oils are more stable than corresponding natural oils with unsaturated fats. Saturated fats are mostly found in animal sources (Butter, Ghee, etc), which are scarce and hence expensive. Oils from vegetable sources are mostly unsaturated, abundant and less expensive. So, partial hydrogenation of less expensive unsaturated fats from vegetable sources is an attractive commercial proposition. They are not only stable and make the fried food product last longer but also add to the taste. That is why we find widespread use in commercial cooking in Breads, Cookies, Cream Biscuits, Sweets, fried snacks, chocolates and ice creams.

Health Risks
The primary health risk identified for trans fat consumption is an elevated risk of coronary heart disease. The reason is trans fat increases the level of LDL or bad cholesterol and decreases HDL or good cholesterol. Other ill-effects are Alzheimer’s disease, Cancer, Diabetes, Obesity, Liver dysfunction and infertility in women.

Prevention of Food Adulteration Act specifies that the melting point of Vanaspati be strictly less than 41 °C. That means manufacturers must ensure that hydrogenation is stopped before the melting point reaches that point. Also, the labels on packed food products must show the amount of trans fats in the food sample. ITC, Britannia, and the like, who are branded manufacturers of such food products, clearly mention that Trans fats are bad for health, just like Cigarette packs mention ‘Smoking is injurious to health’.

It is highly advised that consumers avoid all commercially prepared foods (Bakeries, Hotels and Packed foods) to the extent possible. One should also carefully read the labels for its ingredients and nutrition values. Food items containing Edible Vegetable Fat or having Trans fats value more than 2% should be avoided.

Sources – http://en.wikipedia.org/wiki/Trans_fat

Problem Statement – To economically design a carton box to pack 20 half-litre pouches

Regular Slotted Carton
The carton box is formed from the regular slotted carton (RSC). The image shows how cardboard is cut to form a carton box.
 

Solution

If l is the length, b the breadth, and h the height of a formed carton box, then the area of the cardboard shown above is 2 * (l + b) * (b + h). The cost of the carton box is directly proportional to the area of the cardboard used. So, the problem boils down to reducing the area of cardboard for a given volume of carton box.

Minimise 2 * (l + b) * (b + h), given l * b * h = V, a constant

Ideally, the surface area of any cuboid is 2(lb + bh + lh), but there is an extra 2b2 area in the figure. That extra area becomes the inside flaps during the forming of the carton box. It gives additional strength to carry the load inside the carton box. Also, in order to avoid that area, the cardboard has to be cut into a more complex shape. With that area, cutting the cardboard is simple, i.e. a rectangle of length 2*(l + b) and breadth (b + h).

We know that, the cuboid with minimum surface area for a given volume is a ‘cube’. But that is not the case here as there is extra 2b2 area.

Let F(l, b, h) = (l + b) * (b + h) = lb + lh + b2 + bh Ignore the factor 2 for time being

To eliminate factor ‘l’ from the expression, substitute l = V/bh (Since lbh = V)

F(b,h) = V/h + V/b + b2 + bh

Differentiate partially w.r.t. ‘h’, Fh(b,h) = -V/h2 + b

Equating to zero, we get, b = V/ h2

Substituting for V = lbh, we get, b = lbh/h2 or l = h.

Rewriting the problem, by substituting l = h, we get,

V = bh2

Area = 2 * (h + b)2

(h + b)2 is minimum when (h + b) is minimum, since (h+b) can’t get negative.

Minimise (h + b), given bh2 = V

Let, F(b,h) = h + b

We can eliminate the variable b by substituting for b = V/h2

F(h) = h + V/ h2

On differentiation, F’(h) = 1 – 2V/h3

Equating to zero, we get, h3 = 2V or h = (2V)1/3

Now, b = V/h2 or b = (V/4)1/3

For optimal solution, l = (2V)1/3, b = (V/4)1/3 and h = (2V)1/3

In our case of 500 ml pouches, though the volume of coconut oil is 10 litres, about 25% allowance should be given to accommodate the pouch film, and the pouch though flexible is not a perfect fluid to occupy all the space inside the box. So, the volume of carton box required is 12.5 litres or 12500 cubic cms. So, the dimensions of carton box area l = 29.24 cms, b = 14.62 cms and h = 29.24 cms for V = 12500.

Comparison
At present, we are using the standard sized carton box for both half litre and one litre pouches. We don’t have any other option now as our order quantities are small.

l = 32, b = 19 and h = 21, V = 12768 cm3 and A = 4080 cm2

For V = 12768, with minima solution, we have just arrived, l = 29.45, b = 14.72, h = 29.45 A = 3902 cm2

Or the ideal solution is 4.35% better. It may look insignificant but carton box is a packing raw material with repeated use and large quantity. So, it can result in significant cost savings. At Cocoguru, we examine each of these items for its costs and try and minimise it without compromising on customer value.

Cutting Costs is not about Cutting Corners but about careful Value Engineering.