The small scale pharma manufacturers have submitted a list of four options to the Central government to remove the anomalies in the excise duty exemption limit for the SSIs. The anomalies in the SSI excise exemption limit crept in when the Central government reducing abatement rate from 42.5 to 35.5 per cent coupled with the reduction in excise duty in the budget 2008 from 16 to 8 per cent to prevent inverted duty structure.
The four options submitted to the government by SME Pharma Industries Confederation (SPIC) are: exemption limit may be calculated on clearances value where after the stipulated abatement of 35.5 per cent shall be adhered to, abatement of 80 per cent should be allowed till exemption limit where after the stipulated abatement of 35.5 per cent shall be adhered to, levy MRP-based excise on excise free zones to provide a level playing field and increase pharma SSI exemption to double.
In a submission to the chairman of central board of excise and customs (CBEC), it said that the truncation of pharma SSI exemption limit by faulty abatement policy is stifling the SSI units which are already under pressure due to the unfriendly tax structure in the country.
In fact, the small scale pharma manufacturers have been crying coarse for a level playing field ever since the government introduced MRP-based excise in January 2005 which has proved to be counterproductive to its objectives with the massive migration of industries to excise free zones like Baddi in Himachal Pradesh.
The small pharma companies urged the government that they should be allowed a clear exemption limit of Rs 1.5 crore which should have no relation with abatement rate especially because rate of abatement is subject to change as per the government policy. Though the government had raised the SSI exemption limit from Rs.1 crore to Rs.1.5 crore in the Union budget 2007 when MRP based excise was in operation with abatement of 42.5 per cent, the reduction in abatement in the budget 2008 by 7 per cent has taken away the sheen of the excise exemption to the SSIs.
The problem with the SSIs is that the exemption limit of SSI is also calculated on net assessed value basis. With reduced abatement it gets exhausted at Rs.75 lakhs ex- factory clearance value considering SSI trade margins of 300 per cent on non-schedule drugs as per 11th plan. Such trade margins are not common to 103 other commodities and the SSIs are not pressing for 1800 per cent trade margins prevalent in tax holiday states.
Since the anomalies are peculiar only to the pharma sector, SPIC urged the government not to bracket them with other commodities under MRP-based excise keeping certain facts also in mind e.g. medicines and pan masala cannot be equated in terms of cost of technical selling which warrants higher trade margins and also because medicine is not a luxury.