The Central Government notification to extend excise exemption to hill states of Himachal, Uttranchal and J&K for another three years has come as surprise and shock to the pharma industry associations fighting court battles to revoke the decision.

At least two cases are pending with the Gujarat and Madhya Pradesh High Courts against the MRP based excise exemption for hill states.

"We will take up the new development to the Gujarat High Court during the hearing, this week. This cannot be tolerated," said a top level source with the Gujarat State Board of the Indian Drugs Manufacturers Association (IDMA-GSB), the petitioner in Gujarat.

The Gujarat High Court had admitted the petition on 2nd August 2005, and the court is yet to give its verdict. The petition questions the government decision to give total exemption from excise duty to units situated in some states like Himachal Pradesh, Uttaranchal and Jammu &Kashmir, citing the notification violated Article 14, 301, 303 and 19-1(g) of the Indian Constitution. The notification discriminated against pharmaceutical units similarly situated in other states, violating Article 14 of the Indian Constitution. Further, the government notification violated Article 301 and 303 of the Indian Constitution, impairing interstate trade. The notification also amounted to violation of fundamental rights guaranteed under Article 19-(1)(g), which guarantees freedom of business, trade and profession in any part of the country.

Talking to Pharmabiz, J P Agarwal, patron, Madhya Pradesh Small Scale Drugs Manufacturers Association said the organization would approach the Supreme Court, if it loses the case in the Madhya Pradesh High Court.

The association filed a petition on February 11, 2005 citing the MRP based excise notification is a constitutional violation. The court admitted the petition and directed the respondents in the case - the secretary, Union finance ministry and commissioner, commissionerate of the department of customs & central excise, Indore, to respond within four weeks. Despite the case was listed for hearing at least 8-9 times since February, the Government has not responded to the court so far, said Agarwal.

The petitioner mainly argued that as per the Entry No.84 of the Indian Constitution, the government is not empowered to levy excise duty on sales value, and the excise duty can be levied only on the manufacturing expenses. (Entry No.84 of the Indian constitution gives powers to the legislature to levy excise duty from manufacturers). The petitioners argued that the sales value of drugs, unlike other manufacturing industries, includes marketing and distribution expenses that constitute a lion's share of the expenses. Hence, the present excise duty notification to levy Excise Duty based on MRP is a gross violation of the constitutional rights given to Indian citizens and the government should be directed to refrain from implementing it.

T S Jaishankar, chairman, the Confederation of Indian Pharmaceutical Industries (CIPI-ssi) said the Government decision was politically motivated to win the forthcoming elections in these states. "This move will kill the SSI pharma industry in India. The authorities are doing this despite the fact they know they are losing excise revenue. CIPI will soon announce our future strategies to fight against this injustice," said Jaishankar.