The now-suspended row over the withdrawal of tax exemption to the contract manufacturers in the excise-free zones is all set to come back haunting the industry once again, with the Chemicals Ministry backing the pending proposal in its pre-budget recommendations to the Finance Minister.

In the note to the FM to intimate its suggestions to be accommodated in the budget proposals, the Chemicals Ministry has strongly advocated the abolition of excise exemption now given to the contract manufacturers and loan licences in the tax free zones, it is learnt.

The Ministry has also asked for complete removal of excise duty on all drugs falling under the National List of Essential Medicines to make them affordable to the people. Only a few drugs related to AIDS and Cancer enjoyed such zero duty now.

Supporting the long standing demand by the pharma associations across the board, the Ministry has recommended a cut in the excise duty on all other formulations from the present 16 per cent to 8 per cent. Besides, it has also called for extension of some existing benefits under different schemes to the industry upto 2017. The sops under Section 80(1)(B) relating to tax holidays and Section 18(1)(B) relating to the investment in hospitals as per the Income Tax Act may be extended upto 2017, as per the Ministry note.

In spite of the recommendation by the Economic Advisory Committee to the Prime Minister, the proposal to restrict tax exemption only to those manufacturing drugs under own licence in the excise free zones has been virtually shot down by the Finance Ministry. It has been pending there for months now.

However, the proposal had caused a wide chasm among the industry with the big and a section of the small players on both the sides. The units in excise-free states of Himachal and Uttarakhand formed a common association to defeat the proposal, which the small players outside the zones thought, would be the only solution to help the struggling SSIs.

The Chemicals Ministry has repeatedly voted in favour of the proposal, as in the case with cutting of excise duty on all pharmaceutical products to 8 per cent. With the Ministry once again taking up the excise duty issue in the pre-budget submissions, the industry hopes have gone up.