The excise free zones of Uttarakhand and Himachal Pradesh are  today still the numero uno  destinations for setting up pharmaceutical units. These areas became preferred destinations for pharma companies in the year 2002 with the announcement of tax concession and 100% Central Excise duty exemption for a period of 10 years from the date of commencement of commercial production, and 100% income tax exemption for an initial period of five years. The companies also get 30% exemption for a further period of five years and capital investment subsidy, subject to a ceiling of Rs. 30 lakhs. Says Vinod Kalani,General Secretary, Federation of  Pharma Enterprises (FOPE), Baddi.

However he points out the current scenario is not all that rosy. “The region faces problems with certain key requirements, which are mandatory for smooth operation of industrial units. The availability of manpower has become an issue in the region. While there is no dearth of workforce, there is a problem of labour leaving jobs quite frequently. Minor hikes in pay are enough to lure an individual for changing his/her job. We are facing this problem both with respect to skilled as well as unskilled workforce” , he adds.

Infrastructure, which was once a key element in attracting investment in the region, seems to have fallen apart. The region currently has poor road connectivity. Although the government repairs the roads every six months, the heavy movement of traffic causes regular damage to the roads. We do not face problems with the availability and timely delivery of raw materials.

“Slowly and gradually, we have started witnessing power cuts in the region, which were earlier not there. This is because of the expansion of various industries. Power tariff is also a problem. The state has increased power tariff, which is affecting the health of the pharma industry”, he says.

The above exemptions were available to units that were set up before  March 31, 2010. There was lot of confusion in the industry whether formulations manufactured for the first time after this  date shall also attract CE duty exemption, if one increases capacity or sets up new plant and machinery and new dosage form etc., then what will be the status of CE duty exemption?

FOPE made a strong case and met senior officials at CBEC, Department of Revenue, Ministry of Finance to discuss the issue. After 10 months of continuous follow up and meetings at North block, New Delhi, we were able to get the clarification on the availability of the exemption benefit under the notification nos. 49/2003-CE and 50/2003-CE both dated 10.06.2003, in the following situations:

• Where a unit starts producing new products after the cut-off date using plant and machinery installed up to the said cut-off date and without any further addition to the plant and machinery.
• Where the installed capacity in a particular unit is upgraded after the cut-off date, so as to increase the efficiency of the machinery by installing ancillary machines or replacement of some parts etc. but in such a way that it does not lead to increase in capacity of production.
• Where new dosage forms are manufactured after the cut-off date on the same line of production with the same machinery.
• Where a unit manufacturers a new product by installing fresh plant, machinery or capital goods after the cut-off date.

The board had examined the matter. Under the said notifications, any new unit set up or an existing unit which has undergone substantial expansion that commences commercial production before the cut-off date (31.03.2010) is entitled to excise duty exemption in respect of excisable goods (other than those appearing in the negative list) manufactured and cleared for a period of ten yeas from the date of commencement of commercial production. The provisions of these notifications do not place a bar or restriction on any addition/modification in the plant or machinery or on the production of new products by an eligible unit after the cut-off date and during the exemption period of 10 years as per the notification. Therefore, it was clarified that in all the above situations, the benefit of the excise duty exemption under the notifications would continue to be available to eligible industrial units. However, the period of exemption would remain 10 years and would not get extended on account of such modifications or additions under any circumstances.

This means that now in an existing unit (before 31.03.2010) one can put up new machinery, add new dosage form, manufacture new formulations etc. This has given a very big boost to the dwindling confidence of the industrialists in these states. The pharma industry needs constant upgradation in terms of new technology, new drug formulations, better and faster machines and equipment as most of the companies are contract manufacturers for other brands and marketers which means as the market changes, manufacturers have to upgrade otherwise there is no growth or development.

“FOPE and overall industry in these excise free zones have whole-heartedly welcomed the clarification from the finance ministry, our many thanks for a positive response from CBEC, which has enthused new life in the already burdened pharma industry”, he said.

There is an anomaly in rate of central excise duty on bulk drugs and formulations, the Pharma Industry as a whole in the country, is at disadvantage. In excise free zones, the 8% excise duty charged on bulk drug is being added to the cost of finished product; if it becomes 4% (as on the finished products) then the cost of the finished product will be reduced.

FOPE has been representing to the Ministry of Finance and Secretary, Dept. of Pharma to remove this anomaly in the C.E duty rate. The office - bearers of FOPE have met the concerned officers in the Govt. many times in this regard and explained FOPE’s point of view.

FOPE is working on various issues with the state governments for support and growth of state-of-the-art-pharma industries that have been set up in these two states. These include:
Regular supply of power

• Reasonable tariff of power
• Development of infrastructure
• Labour / transport union and related issues
• Security and law & order related issues
• Entry tax and other taxes
• Pollution control related issues
• Training of technical manpower
• Helping in settling down the technocrats and knowledge based manpower who have shifted with families to these two states from all around the country

Says B.R. Sikri Co Chairman, FOPE, “Since pharma sector has invested enough money in HP and UK and generated employmentor the youths of the above two states, as we are keeping 70 % local people, Govt of these two states should also come forward in generating sufficient infrastructure so that units don't go back to their respective states once the benefit of exicse and Income Tax etc. is over. Whatever was the status at the time of introduction of excise free zone area, should be maintained and no further duties or taxes such as entry tax etc may be added now and similarly power tariff etc. should also not be increased to avoid unviable situation of such units in the above two states”.

Commenting on the  impact of recent clarification by Govt on Excise, he said “FOPE had  met Chairman, Central Board of Direct Taxes about nine months ago and given a representation on excuse related issues. Teams of  office- bearers has been pursuing the matter with the above board from time to time and we have been getting positive views always. Finally after hard work and continuous follow up we were successful in getting favourable response in due course of  time, which is a welcome step towards increasing the efficiency of the units based in UK and HP.  There were apprehensions among the manufacturing units  that Govt may now allow them  to add any new machineries although it is required to maintain the capacity and to upgrade the technology from time to time which is an on going process. But Govt appreciated our concerns and agreed to our proposal.  By this, we are able to add new plant and machineries so far as we are maintaining the same capacities.  We on behalf of our members units of the above two states convey our gratitude to the Finance Ministry, Dept of Revenue , CBDT for a very positive stand. This will certainly boost the morale of the manufacturers.”

Talking about the tender business by SSI sector he said “We persistently followed up with the Govt to provide the SMEs opportunities to compete in tender applications and not impose limitations. Due to our consistent efforts, the MSME Ministry had got a clause included in the procurement policy for ministries and SUs that 20% of all their annual purchase volume of pharma must be from smaller units. This is also a welcome step on behalf of MSME Ministry”.