CDSCO issues compliance framework for SEZ-to-DTA drug transfers

The Central Drugs Standard Control Organisation (CDSCO), under the Directorate General of Health Services, Ministry of Health and Family Welfare, has issued a circular dated 8 April 2025, that outlines procedures for the transfer of drugs from Special Economic Zones (SEZs) to the Domestic Tariff Area (DTA).

Under Schedule D, clause (6) of the Drugs Rules, 1945, SEZ units are exempt from provisions of Chapter III of the Drugs and Cosmetics Act when importing drugs for manufacturing and export, provided the drugs are not diverted for domestic sale. The new circular lays down a standard operating framework to regulate such transfers to the domestic market and ensure compliance with the Drugs and Cosmetics Act and associated Rules.

According to the circular, “such imported drugs may be permitted for sale and distribution to the domestic area, if they meet the requirements of standard procedure for import and registration as required under Chapter III of the Act and Rules there under.”

Key directives include:

1. The Banned drugs manufactured at Special Economic Zone for export purpose are not allowed for transfer to Domestic Tariff Area for any purpose.
2. In case of unapproved and approved new drugs manufactured in SEZ, the requirements specified for manufacturing of new drugs under NDCT Rules 2019 and Drug Rules 1945 are required to be complied with.
3. In case the drugs manufactured in SEZ do not fall under the category (i) & (ii) above, requirements specified for manufacturing of drugs under the Drugs Rules 1945 are required to be complied with.
4. In case, an API is imported to SEZ for manufacturing of its formulation and the formulation is proposed to be diverted to DTA for sale and distribution, Registration Certificate & Import License are required for that API.
5. The API/semi-finished/ finished dosage forms in bulk packs imported without Registration Certificate and Import License shall not be permitted for sale and distribution to the DTA.

‘In this regard, all the port officers are directed to review the documents provided in ICEGATE portal for clearance of bill of entry pertaining to drugs manufactured in SEZ for sale in India by following the above mentioned procedures. Additionally, data on these bill of entry should be maintained and the details of such bills of entry should be intimated to the Olo DCGI as and when required,’ the circular concluded.

Amid implementation of these procedures, one observer has offered a different perspective. Akella Akka Surya Prakasa Rao, an Indirect Tax Advocate, who first shared his views on LinkedIn and later elaborated on them in a statement to Express Pharma, questioned the regulatory implications of the recent integration of SEZonline with ICEGATE.

“The deeming fiction created for SEZs being a foreign territory for the purpose of tax applicability should be confined only to that extent and should not be extended further. Earlier SEZ to DTA supplies did not insist for licence fee, but due to integration of SEZonline with ICEGATE, the above instructions appear to make such licence fee payment mandatory. Needs a re-thinking by the policy makers,” 

Explaining how the process has changed, he added, “Earlier, when SEZonline was used, the bills used to get cleared by the jurisdictional Customs authorities residing inside/near SEZ locations and the bills were never referred to drug authorities for their comments. Now post integration of SEZonline with ICEGATE, when the bill of entry for sale from SEZ to DTA is filed, it is being routed to the drug authorities in routine,” said Rao.

He argued that authorities now appear to be treating SEZ to DTA transfers as physical imports, and are applying licence fee requirements accordingly.

“As per the policy, [the fee] is payable only on import of a new drug into India, and sale from SEZ to DTA is not on par with physical import,” he argued. “Hence insisting on payment of licence fee in case of SEZ to DTA sale, treating it as import is not correct in the eye of law, as the deeming fiction of SEZ being a place outside India is created for the limited purpose of tax implications. Hence as a result of system integration, a new levy cannot be imposed when the law remains the same,” he added.

In response to these concerns, Express Pharma reached out to Dr Chandrashekar Ranga, Joint Drugs Controller (India), CDSCO, New Delhi, who clarified, “CDSCO has provided a pathway for diverting the drugs manufactured in the SEZ subject to the conditions mentioned in the office memo.”

While Rao’s observations have not been publicly echoed by others so far, his comments raise important questions about system-level changes inadvertently creating new compliance burdens without corresponding legal changes.

neha.aathavale@expressindia.com

nehaaathavale75@gmail.com