The Comptroller and Auditor General (CAG) has reported that some
manufacturers in Pune, Indore and Mumbai were producing and clearing
bulk drugs specified in the first schedule to DPCO but the Maximum
Allowable Post-manufacturing Expenses (MAPE) exceeded the prescribed
limit of 100 per cent.

“During the scrutiny of records, we found
that certain manufacturers under Pune III, Indore and Mumbai II,
commissionerates were producing and clearing bulk drugs specified in the
first schedule to the DPCO but the MAPE exceeded the prescribed limit
of 100 per cent. Moreover, in these cases, the Government/ National
Pharmaceutical Pricing Authority had not prescribed the MRP at which the
bulk drugs would be sold. Consequently, the MRP got overstated and the
consumers ended up paying extra amount of Rs. 23.53 crore,” according to a recent report by the CAG.

The
Drugs (Prices Control) Order, 1995 provides that the Government may fix
the MRP for a bulk drug in the first schedule. The MRP is calculated
using a formula prescribed in the DPCO. The formula contains a variable
element ‘MAPE’ which is the sum total of all costs incurred by a
manufacturer upto retailing and includes trade margin and margin for the
manufacturer. DPCO prescribes that MAPE shall not exceed one hundred
per cent for indigenous scheduled formulations

According to a
response from the NPPA, which agreed with the audit observation, stated
that a demand notice had been issued to Nicholas Piramal India Ltd. But
the action taken on the other firms had not been intimated.

“We
also found two cases where the NPPA had fixed the ceiling price of
certain bulk drugs specified in the first schedule to the DPCO but the
manufacturers charged higher prices from the consumers. Tristar
Formulations Pvt. Ltd. Puducherry, sold Ecosprin AV75 at Rs. 75 upto February 2008 and Rs. 71.56 upto May 2008 although the NPPA had fixed the price at Rs. 18.63 with effect from 23 March 2007. Similarly Ecosprin AV150 was sold at old price of Rs. 79.46 till April 2008 whereas the revised price of Rs.
18.95 had been prescribed from 24 March 2008. Though the Government
realised central excise duty on the higher MRP adopted for the
formulations, the assessee realised an undue benefit of Rs. 7.70 crore by overcharging consumers. The amount was recoverable from the assessee,” the report said.

On
this being pointed out, the NPPA agreed with the observation and stated
that a demand notice had already been issued and the company had also
deposited an amount of Rs. 1.25 crore. Further recovery had been stayed by the High Court at Chennai.

“Similarly,
Aditi Pharmaceuticals (P) Ltd., in Pune , was manufacturing
‘Prednisolone eye drops, 5ml’ with the brand name ‘Gatiquin-P eye drops’
for Okasa Pharma Ltd. Prednisolone is a bulk drug prescribed in the
first schedule to the DPCO. The NPPA fixed a ceiling price of Rs.
12.84 inclusive of all taxes for ‘Prednisolone eye drops, 5 ml plastic
bottle with carton’ on October 1, 2008. However, the old MRP of Rs. 57.75 was changed during October 2008 and this resulted in undue benefit of Rs. 83.89 lakh to the principal manufacturer which was recoverable,” the CAG said.

“The
NPPA should review all cases of prices of pharmaceutical products where
MAPE was required to be restricted to the prescribed cap and recover
the excess amount charged by the manufacturers of such pharmaceutical
products,” the auditor suggested.