The recently announced Foreign Trade Policy has plugged a major loophole that existed in the previous Exim Policies, which had allowed a lot of misuse of the excise concessions given to the drug Export Oriented Units.
The new policy has clearly spelt the conditions applicable to the production of EOU/EHTP/STP/BTP units so as to avoid any such misuse. The policy states that no domestic tariff area (DTA) sale at concessional duty shall be permissible in respect of motor cars, alcoholic liquors, books and tea (except instant tea) or by a packaging/ labelling /segregation/ refrigeration unit/ compacting / micronisation / pulverization / granulation /conversion of mono-hydrate form of chemical to anhydrous form or vice-versa and such other items as may be notified from time to time.
The absence of specific instructions on packaging/ labelling /segregation/ refrigeration unit/ compacting / micronisation / pulverization / granulation /conversion of mono-hydrate form of chemical to anhydrous form etc had enabled several drug EOUs to import raw materials that otherwise attract anti-dumping duty from cheap destinations and undergo them through some cosmetic changes like segregation, micronisation, pulverization, granulation etc and then sell them in DTA as a new product. This activity was going on despite the instructions that all DTA sales would attract existing taxes which are not applicable to the EOUs.
According to sources, there were several such EOUs whose prime intention was not to export, but to access cheap raw material through this route and sell it in the domestic market. The new clarification has plugged this loophole, they feel.
Interestingly, the companies were indulging in such activities based on the existing definition of "manufacturing" in the Drugs and Cosmetics Act. The drugs act considers any changes made to the raw material as manufacturing activity. Taking advantage of this, the EOUs used to make minor changes and sell them as new products, they said.
The Indian Drugs Manufacturers Association had requested the commerce ministry to bring about such a change in its pre-budget memorandum. The IDMA officials said that they are very happy with the recent announcement made by the government. However, the complaints of IDMA have only met with partial success, as the ministry did not bring in similar clauses in the case of SEZs. The IDMA had wanted both EOUs as well as SEZs to be covered under this rule.