The Supreme Court has sent notices to Union government and tax holiday states like Himachal Pradesh, Uttarakhand, J&K and Sikkim on a petition filed by Punjab government on the issue of tax holiday prevailing in these states which resulted in mass exodus of industries to these neighbouring states to take advantage of the tax benefits.

The Supreme Court has asked the Centre and the state governments to reply within four weeks.

It may be recalled that the Punjab government had moved the Supreme Court in July last year praying to extend the tax holiday schemes, presently existing in the neighbour states, to Punjab also as the state had witnessed a mass exodus of industries to the neighbouring states to take advantage of the tax benefits which resulted in draining of the state exchequer during the last some years. The central government in 2002 had announced hilly states like Himachal Pradesh, Uttarakhand, Sikkim and J&K as tax holiday states to attract the industries to these industrially backward states.

Senior officials in the Punjab Industrial Department said that after getting the replies from the Centre and the states, the Supreme Court will decide the next date for hearing the issue.

The Punjab government was annoyed over the tax holiday schemes because while announcing the tax holiday scheme, the central government did not make any provisions to compensate the affected states like Punjab. Punjab is one of the worst 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 was given to the units. Since then, the position of the state in the industrial graph slipped sharply to 15th position from the second position at one time. Gujarat was at number one position in the chart. Pharmaceutical industry, especially the small and medium scale sector, has been one of the most affected segments due to this mass exodus of manufacturers.

Though the Punjab government is challenging the tax benefits to all the industries, it will definitely have a bearing on the pharmaceutical industry as a large number of pharma units, not only from Punjab but also from different parts of the country, have migrated to these tax holiday states. If Punjab is also included in the tax holiday states, several pharma units which have left the state to take advantage of tax benefits will make a come back.