The pharma exporters in the country have demanded the union commerce ministry to bring parity in the excise duty rates for inputs and finished formulations for pharma products as part of the ministry's efforts to reduce transaction costs in exports.

In the pharmaceutical industry, finished formulations attract six per cent excise duty, whereas inputs attract 12 per cent excise duty. This has resulted in huge accumulation of CENVAT credit. There is delay in refund of CENVAT credit leading to accumulation of CENVAT credit due to anomaly in the rates of excise duty on the inputs and outputs in pharma industry. This blockage of working capital has resulted in significantly high interest cost, leading to uncompetitive exports, said DB Mody, panel chief, foreign trade policy & indirect taxation, Pharmexcil.

Mody further said that in the past, the exporters of pharma formulations had an option to clear the export consignments at the rate of 10 per cent (vide notification 02/2008—CE dated 01.03.2008) and local clearances at four per cent (vide notification no 04/2006-CE dated 01.03.2006). The exporters had relied upon the judgement of the Supreme Court in CCE, Baroda v/s Indian Petro Chemicals and Share Medical Care v/s Union of India, that where there subsists more than one exemption notification, the assessee may exercise his choice, and select any one as per his volition.

However, rebate sanctioning authorities rejected cash rebate at 10 per cent and sanctioned only at four per cent in cash and balance six per cent by way of CENVAT credit. At the appeal stage, one or two commissioners set aside the order, in original rebate sanctioning authority and allowed full cash rebate at 10 per cent. But the department went in appeal before Revisionary Authority and succeeded. In March 2012, central government rescinded the two notifications providing the above option, Mody in his suggestions to the ministry said.

So, the exporters should be allowed to clear pharma formulations at 12 per cent, being the rate of duty paid on inputs. And, this would not entail any loss to the national exchequer, Mody said and added that with the current account deficit touching a whopping US$ 32.69 billion during the third quarter, if the transaction cost is not reduced it will have far-reaching implications on  exports.