The pharmaceutical industry has demanded suitable amendment in CENVAT credit rules to allow option to the tax payer to transfer unused input credit of a location to another location where the said credit can be utilised by them, whether belonging to the same company or loan licensee.

Highlighting the problem faced by the industry, IDMA has urged the government to amend CENVAT credit rules as the provisions identifying the input credit to a particular location is very rigid and does not take into account the complexity of present day business dynamics wherein majority of the taxpayers operate with multi-locations business set up.

As per the present scheme of provisions in law for allowing credit for the input used for manufacturing of taxable output, the credit of the CENVAT for the duty paid in input is identified and attached to a particular location.

In its pre budget 2016-17 proposal to ministry of finance, the association explained that many companies operate on business model of manufacturing on loan licensing basis and at times, duty credit lies in the books of the loan licensing party. The department will appreciate that with business becoming more global and also the growing demands (both global and local), it is not possible to manage production and supply from a single location due to capacity constraints. More so, with geographical distribution of market and customer and also to become more efficient and competitive, it has become necessary for the business houses to have multiple manufacturing locations including having a loan licensing unit.

In such scenario having provision of input credit identified and attached to a manufacturing location leads to disparity in terms of liability to pay excise duty at particular location even when other locations have unused input credit and; blockage of funds in working capital which does not get effectively utilised in the business and it becomes kind of dead fund in the business.

The problem becomes more acute when an industry such as ours has a unique inverted duty structure making it practically not possible to use the entire accumulated credit. So, we request that a suitable amendment be made in CENVAT credit rules. The amendment will not only bring fairness in allowing legitimate input credit with flexibility among the different business units but also will help manage effectively use of the dead working capital funds for the business and go a long way in easing of doing business. This will not only help smoothen the process of compliance but will also help in building more effective and taxpayer friendly business environment in the country, said IDMA.