Several pharmaceutical companies located outside the excise free states are understood to be using the labels meant for excise free zones like Baddi in Himachal Pradesh to evade tax. The companies are procuring these labels and other printed packaging materials from the open market.

The pharmaceutical industry has to pay 16 per cent excise duty on all drugs manufactured in the country whereas there is no excise duty in the tax-exempt states like Himachal Pradesh, Uttarakhand and J&K for some years now as per a Central policy.

Though there were reports of such illegal activity going on for some time in the country, especially in neighbouring states like Punjab and Haryana, the drug authorities have failed to curb this activity on account of poor surveillance.

Recently, the Maharashtra drug authorities seized drugs worth Rs 6.5 lakhs from Pharmax India Pvt Ltd in Mumbai with Himachal Pradesh label. Though the company is registered in Mumbai with its headquarters at Ghatkopar, the company has been selling the drugs with labels of Sunvat Pharmaceuticals, Himachal Pradesh. Senior officials from Maharashtra FDA said they are waiting for the outcome of the investigation.

According to sources in the industry, several such illegalities are being resorted to by pharmaceutical companies to evade tax. Several companies are manufacturing their products in Punjab and Haryana but are billing in Baddi. "It is just a tip of the iceberg. There are several cases in which production is taking place in Ambala and other cities but billing is done in Baddi. They don't do the granulation work in Baddi, but only blistering work which is essentially a packaging function", an industry source said.

Industrialists say main reason for this illegal activity is the lack of monitoring on printing materials by the authorities. Printed packaging materials are easily available everywhere as the printing is done by the local people and there is hardly any monitoring on it, they said.