The prolonged tussle on the withdrawal of tax sops to contract drug manufacturers in the excise-free zones may soon land in the court rooms, with the Punjab government actively planning to move the Supreme Court against blanket tax holiday schemes in some states.

Hit hard by the migration of industries to the excise-free zones in the neighbouring states, the Punjab government is in the advanced stage of filing a petition in the Apex Court seeking to nullify the tax holidays, it is learnt. The proposal, describing the tax benefits as unjust and claiming damages for the loss, has already been sent to the Centre for clearance, sources said.

Punjab is one of the most affected states by the tax holiday schemes as a large number of industrial units shifted base to neighbouring Himachal Pradesh where 10-year-tax holiday had been given to the units. The position of the state in the industry graph has slipped sharply to 15th position from the second position at one time. Pharmaceutical industry, especially the small and medium scale sector, has been one of the more affected segments due to this mass exodus of manufacturers.

Commenting on the development, a spokesman of the SME Pharma Industries Confederation (SPIC), which has been pushing for withdrawal of tax exemption given to the contract manufacturers for a level-playing field, said they would also consider joining the case if Punjab government goes to the court.

A proposal, endorsed by the Economic Advisory Committee to the Prime Minister, to limit the tax exemption only to those contract manufacturers who produce drugs under own licence has been pending with the Finance Ministry for long now. The proposal was shelved in view of the elections in Uttarakhand and Himachal Pradesh, the two prominent tax-holiday destinations in the country. Recently the Finance Ministry withdrew tax benefits to the peripheral industrial units in these states and it was viewed as an indicator to finally rolling back excise exemption to the contract manufacturers.

With the pharma industry vertically divided on the lines of tax-free and non-tax free zones, both the sides have been lobbying aggressively for their causes. While the industry outside the excise-free zones wanted some level-playing field to survive, those in the zones backed up by the big players wanted the sops to continue and believed that the Centre could not roll it back easily as it involved complex legal issues.

With the Punjab government looking serious to move the court, the tussle will now enter a new stage and the verdict of the Apex Court would definitely have far-reaching impacts on the industry in general.