The companies that have flocked to the excise-free zones of Himachal Pradesh and Uttaranchal are in for a shock after a recent clarification issued by the Central Board of Excise and Customs (CBEC) stated that the products that receive marketing approval after March 31, 2007 will not enjoy excise exemptions. All products coming out of post-March-31 capacity expansions would also be considered as taxable items.

The general clarification, known to have issued in response to a specific query from the state government of Uttaranchal, can have a serious impact on pharmaceutical industry which is known to be in the habit of changing formulations, formulation strengths, pack sizes as well as frequent introduction of new formulations.

While the development is a matter of concern for all pharmaceutical companies that have moved into excise-free zones, the small and medium scale units that are sticking on to the taxable regions of the country consider it as a welcome move. Reacting to the development, Jagdeep Singh, President Punjab Drug Manufacturers Association, said that the move would bring in a semblance of balance vis-à-vis drug manufacturers of excise-free and non-excise-free zones.

Going by the clarification, installation of new machinery will not be a profitable proposition for the pharmaceutical units in excise-free zones. They will be allowed to manufacture only those products that have received marketing approval from drug regulators before March 31, 2007 as excise-free items. Once the existing capacity is fully utilized, there will not be any fiscal incentive for further expansion in these units. The clause is of significance to drug industry as it is always looking for new formulations to boost its business prospects.

The Confederation of Indian Pharmaceutical Industries (CIPI), the apex organization of small scale drug units in the country is to find itself in a tough spot with its members in the excise-free zones and taxable zones coming out with divergent views on the development.

P K Gupta, co-chairman, CIPI informed Pharmabiz that they have sought an appointment with the Chairman of CBEC to sort out the issue.

The inter-governmental clarification, known to have issued recently, came to the notice of pharmaceutical industry only during last week.