‘’Need more focus towards taxes’’

Diagnosis is an important aspect of the healthcare, which helps in detection, prevention and cure of disease. All life saving drugs (including medical devices) should be exempted from customs duty on import into India. Diagnostic equipment and consumables thereof specifically required for detecting life threatening diseases should be exempted from the levy of customs/central excise duty. At present the Basic Customs Duty (BCD) on formulations is 10 per cent (other than specified drugs, life saving drugs, vaccines and bulk drugs for which the BCD rate is five per cent). In BCD it should be reduced to five per cent for Formulations. Additional Customs Duty (ACD) and should be charged at a lower rate of two per cent on import of vaccines, specified medicaments and health supplements imported into India. Import of pharma Grade Un-denatured Ethanol used in manufacture of anti-cancer formulations should enjoy exemption/reduced customs duty. To ensure proper end use, importers/ manufacturers may be asked to submit an ‘end use certificate’ duly certified by a chartered accountant demonstrating the use of the said imported product in manufacture of anti-cancer formulations. There should also be clarity on the classification of the said product and the same should be classified under Chapter 29 of the Customs Tariff Act. The central excise duty rate of API (primary raw material for pharma formulation manufacturers) may be rationalised and made at par with pharma goods i.e. excise duty on the inputs (API) may be reduced from 12 per cent to six per cent. Alternatively, government should introduce a refund mechanism to enable pharma manufacturers to avail refund of excess Cenvat Credit especially in case of such an inverted duty structure.

Excise duty on pharma goods

An abatement of 45 per cent to 50 per cent is necessary to enable pharma industry to cover its costs while calculating the central excise duty payable on finished goods manufactured in India. This abatement should be increased to 45 per cent to 50 per cent as the current 35 per cent abatement does not even cover the trade margins and the value of R&D costs and other costs associated with the pharma industry such as distribution of many medicines through “cold chain” – (e.g. vaccines).

There are increased expenses that need to be incurred by the pharma companies. Even otherwise, the increase in the excise duty in Finance Bill 2012 would need to be factored and accordingly department should consider an increase in the abatement percentage for pharma goods.

Cenvat credit

The provision applicable prior to March 1, 2011 should be restored stating that Cenvat Credit is required to be paid only if value of goods is written off fully or provision for write off fully has been made in the books and not in case of write off or provision in the books for a partial amount. In the Finance Act, 2010, the Government allowed the manufacturers from the SSI industry to avail 100 per cent of the credit on capital goods in the first year of receipt of capital goods. Accordingly, in line of this, the Cenvat Credit Rules, 2004 (‘Credit Rules’) should be amended to provide for availing complete credit in the year of receipt of capital goods, subject to conditions. It is suggested that Credit Rules may be amended to recognise endorsed Bill of Entry as a valid document for availing credit of duty paid at the time of import. The erstwhile procedure of endorsement of Bill of Entry in such cases should be continued.

The Central Excise legislation allows for registration of the importer under Central Excise so as to enable them to issue importers invoice as valid document for passing on Cenvat Credit of duty (ACD plus SACD) paid on imported goods. However, the present application format for registration (Form A1) under Central Excise (even under ACES registration) does not provide for registration for category of ‘importer’ which leads to procedural hassles and delay in getting registration.

Increase in MRP

In case of pharma goods where duty is paid on MRP value less abatement, there should not be any additional duty liability for undertaking labelling or packing activity without any increase in MRP of the said product.

Alternatively, clarification to the said effect be issued by the department which specifically provides that mere change in labelling (to comply with regulatory requirements under other laws) or product packaging to meet business requirements should not be construed as ‘manufacture’, unless there is an increase in MRP.

Value added tax

The tax rate of four to five per cent on medicines and the list of tax-exempt goods and declared goods should be uniform across all states. Further, states have adopted varied description in their schedule entries in relation to drugs and medicines. Specifically, life saving drugs and life saving medical equipment should be included in exempt goods or zero rates of percent VAT category.

Service tax

Provisions to be made to enable the brand owner to avail the credit in such cases and distribute the credit to the job worker or avail the said credit on its own to do away with this inequitable situation differentiating between manufacture in-house or at the job workers premises.

Export-oriented units

Presently, we understand that all the SEZ units enjoy exemption from aforesaid import procedure by drug importer. There prevails an ambiguity with regard to extension of said benefit to EOU units. A suitable clarification in this regard would have to be issued to provide a mechanism for import of drugs by EOU units.

– Tapan J Ray, Director, General, Organisation of Pharmaceutical Producers of India (OPPI)