The small scale pharma industry in the country has urged the Union finance ministry to remove the anomalies in the excise duty exemption limit for the SSIs by calculating the exemption on the basis of the ex-factory price of the product instead of the present system of calculating on the basis of the net asset value.

The small pharma companies urged the government that it should be allowed a clear exemption limit of Rs 1.5 crore which should have no relation with abatement rate especially because rate of abatement is subject to change as per the government policy. The small pharma players' ire in this regard stems from the fact that with the reduction in the abatement rate, the excise exemption is also getting diluted. The central government in its last budget had reduced the abatement rate from 42.5 per cent to 35.5 per cent.

The SME Pharma Industries Confederation (SPIC), a confederation representing mostly small pharma companies, has submitted a memorandum to the government in this regard. Urging the government to do away with the policy of giving with one hand and taking away with the other hand, SPIC urged it to remove the anomaly in the policy which has truncated the SSI exemption limit.

Though the government had raised the SSI exemption limit from Rs1 crore to Rs 1.5 crore in the Union budget 2007 when MRP based excise was in operation with abatement of 42.5 per cent, the reduction in abatement in the budget 2008 by 7 per cent has taken away the sheen of the excise exemption to the SSIs, the SPIC said.

Coupled with reduction in excise duty in the budget 2008, abatement rate was reduced to 35.5 per cent to prevent inverted duty structure, which is fair and acceptable when a unit is paying excise duty. The problem with the SSIs is that the exemption limit of SSI is also calculated on net assessed value basis. With reduced abatement it gets exhausted at Rs.75 lakh ex- factory clearance value considering SSI trade margins of 300 per cent on non-schedule drugs as per 11th plan. Such trade margins are not common to 103 other commodities and the SSIs are not pressing for 1800 per cent trade margins prevalent in tax holiday states, SPIC letter said.

The SPIC regretted that though the Union chemicals ministry had made persistent efforts for removal of anomalies and proposed to increase the abatement rate to 80 per cent (based on over 300 per cent trade margins), the proposal was rejected by the finance ministry for the reason that more than 70 per cent would result in payment of entire excise by Cenvat. Subsequently, the Prime Minister had directed the finance ministry to increase the abatement rate for the SSIs to 60 per cent which was also dropped by the finance ministry.