Financial Daily from THE HINDU group of publications
Sunday, Feb 06, 2005
Financial Daily from THE HINDU group of publications Sunday, Feb 06, 2005 |
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Industry & Economy
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Pharmaceuticals Pharma SSIs in a quandary over excise duty on MRP M. Ramesh
Chennai , Feb. 5 ON January 9, the Chennai-based Super Pharmaceuticals Pvt Ltd received a terse letter from its largest customer, German Remedies Ltd. The letter asked Super Pharma to stop all production for German Remedies, until further instructions. The promoter-Managing Director of the Rs 10-crore Super Pharma, Mr Raghu Mohan, knew that there would be no instructions to restart production. In fact, he had been expecting the letter from German Remedies, ever since the Government promulgated an Ordinance on January 8 levying an excise duty of 65 per cent on the MRP price of goods, rather than the price at which it is sold. "The worst thing about it is," says Mr Mohan, "We have just finished putting up a new unit spending Rs 3 crore, only to meet the more stringent Schedule-M standards of the Health Ministry." The Ordinance defeats the very reason for which large pharma companies had their formulations produced by small-scale units. Its effect on Super Pharma: the company losing Rs 6 crore or 60 per cent of its turnover and axing some 100 of the 140 workers! If the estimates of the Confederation of Indian Pharmaceutical Industry are right, Super Pharma will be among the 5,000-odd SSI drug units to close shop and about Rs 7,000 crore of investments rendered idle. Till the Ordinance was promulgated, the excise duty was levied on the price at which the SSI units sold their products to their main customers — the large drug companies. Now, the large companies would rather do it themselves, as the ordinance has pruned the benefits of contract manufacture. But is the Government not right in plugging a leak in the excise revenue stream? According to Mr B. Sethuraman, President, Pharmaceutical Manufacturers' Association of Tamil Nadu, the Government would gain nothing because the large companies are beginning to have their formulations made by SSI units in Himachal Pradesh and Uttaranchal, where there is no excise duty at all, under a special dispensation given to the States. "The Ordinance has been promulgated at a time when we all have invested a lot in upgrading our facilities to meet the Schedule-M standards," says Mr M.D. Varadarajan, Managing Director of Kniss Laboratories Pvt Ltd. The standards have been brought in to make even SSI units export-worthy. A consequence of this, warns Mr Sethuraman, could be that there will be that many banks that will not get their loans repaid. The Pharmaceutical Manufacturers' Association of Tamil Nadu wants the Government to either increase the abatement to 60 per cent (so that only 40 per cent of the MRP price is taxed) or the excise duty rate brought down to 8 per cent, from 16 per cent now. In its representation to the Finance Minister, the association has noted that the Government has fixed an 8 per cent excise duty on "non priority items" such as chocolates, pressure cookers and cosmetics. Even under VAT, the duty is the reduced rate of 4 per cent for pharma products, rather than 12.5 per cent. "You will appreciate that even with 8 per cent excise, the revenue to the Government will increase, as it is now linked to MRP," the association has said in the letter.
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