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Our Bureau

New Delhi , Feb. 22

WITH the Department of Chemicals and Fertilisers demanding an enhancement of the abatement level from 35 per cent to 40 per cent from the declared retail price of drugs for levy of excise duty, the Finance Ministry reiterated that the levels have been maintained keeping in mind the huge difference between the ex-factory price and the retail price.

In an official statement, North Block today defended its decision of levying excise duty on the maximum retail price (MRP) of drugs and medicines. It also stated that this has been done to prevent disputes in valuation of products.

The Government said that 92 commodities are assessed for excise duty on the basis of their retail sale price. However, "In the case of drugs, wide variation between the declared ex-factory price, on the basis of which excise duty was paid, and their retail price was noticed specially in the case of drugs manufactured by loan licensee/job worker," it said.

Quoting examples, the Finance Ministry said that drugs, whose ex-factory price is Rs 7.07 is being sold at Rs 54. Explaining the rationale behind the 35 per cent abatement, it said that the Sandhu Committee, constituted by the Department of Chemicals and Petrochemicals to look into the issue of overcharging by drug companies, had observed that abnormally high trade margins are prevailing, particularly, in respect of generic drugs.

"In view of the above, it was decided to levy excise duty on drugs after giving an abatement of 35 per cent from the declared retail price. The abatement takes into account 10 per cent margin to the wholesaler, 20 per cent margin to the retailer and the statutory levies. In effect, excise duty is charged at 16 per cent on 65 per cent of the retail price. The standard trade margins and statutory levies are excluded from the retail price for the purpose of levy of excise duty," said the statement.

The pharmaceutical industry has been making representations seeking an increase in the abatement levels to 56 per cent. It has been maintaining that the MRP-based excise would lead to an increase in prices of drugs.

The Chemicals and Fertilisers Department, in its Budget proposals, has asked the Finance Ministry to bring down the excise duty to 8 per cent from the current 16 per cent.

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