The small scale pharmaceutical units in the country have sought Prime Minister Dr Manmohan Singh's intervention to remove the anomalies in the excise duty exemption limit for the SSIs arising out of the reduction in the abatement rate from 42.5 per cent to 35.5 per cent by the central government in the last budget.

The SSIs lament that due to the policy of giving with one hand and taking away with the other hand adopted by the Union finance ministry in the last budget, the SSI exemption limit practically gets exhausted when ex factory clearance value is around Rs 75 lakh. The industry is not able to take benefit of the Rs five crore exemption announced in the last budget.

In a written submission, the SME Pharma Industries Confederation (SPIC), a confederation representing mostly small pharma companies, has urged the Prime Minister 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 assessed value.

"We agree that the new rate of abatement is fair when a unit has to pay excise duty. But prior to that a SSI unit is privy to SSI exemption limit of Rs 1.5 crore till which it is supposed to be fully exempt from excise duty as per repeated claims of the government. (Exemption limit was increased from Rs 1 crore to Rs 5 crore in Budget 2007). Regretfully, we are asked by the excise department to evaluate our exemption limit on the basis of Net assessed value. Considering trade margins of SSI at around 300 per cent, the exemption limit gets exhausted when ex-factory clearance value is around Rs 75 lakh", the memorandum said.

SPIC said that though the government had raised the SSI exemption limit from Rs 1 crore to Rs 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.

Along 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.

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.