According to a release on the website of Press Information Bureau, the ministry said, "Drugs and medicines are leviable to excise duty on ad valorem basis. Prior to 8.1.2005, excise duty on drugs and medicines was levied on the basis of transaction value, ex-factory."
With effect from 8.1.2005, excise duty on drugs and medicines is charged on the basis of the retail sale price after providing an abatement of 35 per cent from the retail price. In other words, excise duty is charged on 65 per cent of the retail price declared on the pack.
At present, 92 commodities are assessed for excise on the basis of the retail sale price. In the case of drugs, wide variation between the declared ex-factory price, on the basis of which excise duty was paid, and retail price was noticed especially in the case of drugs manufactured by loan licensee/job worker. Such variations also become source of valuation disputes.
The Sandhu Committee constituted by the department of chemicals and petrochemicals to look into the issue of overcharging by drug companies 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 of 35 per cent 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," the release said.
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