Pharma industry in Himachal and Uttarakhand has almost escaped unscathed from the Finance Ministry's axe to exclude benefit of area-based exemption to those units undertaking only peripheral activities including packaging, storage and labelling.

However, apprehensions are expressed that it could be a possible precursor to the controversial withdrawal of tax exemptions to the contract manufacturers in the excise-free zones after identifying the non-manufacturing units. At the same time, it is expected to crack the whip on the alleged foul plays by some pharma companies who reportedly manufactured drugs elsewhere and got them repacked in the excise-free zones to avail of the sops.

The industries department in Himachal has already launched a massive exercise to identify the units engaged only in storage or packaging, though having manufacturing licenses.

Reacting to the notification by the Centre, Himachal Pradesh Drug Manufacturers Association president Sanjay Guleria said the notification would have no impact on the pharma industry as such. ``Pharma units here are engaged in only manufacturing and the move is a right step too,'' he told Pharmabiz.

A spokesman of the drug manufacturers in Uttarakhand also echoed the same confidence that it was not going to affect the units engaged in manufacturing.

However, the withdrawal of exemption is expected to make an impact on at least 4 to 5 percent of the industry as a whole in both the hill States. The pharma and allied sectors like packaging and labelling units will be among the losers. The Centre has amended provisions vide Notifications No.1/2008-Central Excise (C.E.), No.3/2008-C.E.[N.T.] and 4/2008-C.E.[N.T.] all dated 18.1.2008 to exclude the benefit of area based exemption to those involved in peripheral activities.

``In order to ensure genuine industrial activities in these regions, it has been decided that benefits of duty exemption should not be admissible to goods in respect of which only peripheral activities like preservation during storage, cleaning operations, packing, re-packing, labeling or re-labeling, sorting, alteration of retail sale price etc. take place. This will ensure that the intended purpose of promoting substantial industrial/manufacturing activities through grant of fiscal incentives is fully met. Even in respect of special category states in the North-east (States of Assam, Tripura, Meghalaya, Mizoram, Manipur, Nagaland, Arunachal Pradesh and Sikkim), the benefit of excise duty exemption has been disallowed to units carrying out only such peripheral activities,'' the notification said.

The contract manufacturers, who have been on their toes about the proposal of withdrawing exemptions, were also reportedly out of danger at present. As per an earlier clarification (dated July 31, 2006) from the Finance Ministry, all loan-licencees were also considered as manufacturers whether they manufactured drugs for themselves or some others, an industry leader said.

However, the rival section outside the excise-free zones fighting for level-playing fields saw the government move as the beginning of the end of `discrimination.' The proposal to withdraw the exemption has been stalled in view of the Uttaranchal and Himachal elections, even after the Economic Advisory Committee to the Prime Minister and Chemical Ministry pressed for the same. And the present notification came just a few days after the elections, sending signals of a likely decision in this regard once the units are identified.