Though the Centre had reduced excise duty on pharmaceutical products
from 16 to eight per cent in 2008, many pharma companies are still not
passing on benefit of this reduction to the consumers with the National
Pharmaceutical Pricing Authority (NPPA) having no real penal powers to
enforce the provisions.

It was found that in 17 cases from nine commissionerates, the manufacturers saved estimated excise duty of Rs.11.39 crore during the period from March 2008 to September 2008 alone. The admissible benefit of Rs.9.82 crore was not passed on to the consumers by reducing the MRP. “The volume of trade of these formulations is significant (Rs.311
crore of duty collected in the 82 commissionerates selected for audit)
and hence the benefits that were not passed on to the customers would
also be quite high,” according to highly-placed sources.

However,
the names of these companies were not revealed. More importantly, the
amount of anomaly spotted was only for a period of eight months, but the
companies are believed to be doing the same even now. “If the same
kind of audit is held for the entire period from March 2008 till now,
the amount will be huge and there will be plenty of such cases,” sources
said..

The denial of passage of the benefit of duty reduction by
the companies to the consumers happens mainly because the NPPA had no
power in this regard, other than issuing advices. The NPPA was unable to
ensure compliance with its advice and the manufacturers were able to
retain the benefits of the excise duty reduction at the cost of the
consumers, it was pointed out

The matter was also brought up by
the Comptroller and Audit General (CAG) in the recent audit report on
the pharmaceutical sector, sources said. “Unless the NPPA gets the
powers to take penal action to ensure compliance with its instructions,
the probability of recurrence of such instances cannot be ruled out,”
the CAG report said.

Now the option for the government is to
include penal provisions in the Drugs (Price Control) Order, 1995 to
ensure that the manufacturers of pharmaceutical products pass on the
benefits of duty reduction to consumers. The Department of
Pharmaceuticals (DoP) is considering this proposal also, it is learnt.

The
rate of abatement on formulation packs of medicines was reduced from
42.5 per cent to 35.5 per cent with effect from March 1, 2008 due to
reduction in excise duty from 16 to eight per cent. The NPPA advised in
March 2008 all manufacturers and marketing companies of non-scheduled
formulation packs of medicines to pass on the benefit of this excise
duty reduction to the consumers by reduction of MRP by 4.58 per cent.