Centre plans excise rejig for job work, textile, pharma to take hit

NEW DELHI: The Finance Ministry has zeroed in on a policy measure that could impact the bottomlines of textile and pharma biggies, but bolster the government’s excise revenues.
The ’04-05 budget is set to bring in a complete change in the existing excise valuation norms for branded products manufactured by job workers and not covered under the MRP-based levy. The basis of excise valuation on these products will be the “first point of independent sale�. The idea is to capture the brand value, said a senior official. The excise legislation will be amended to incorporate independent provisions for job work valuation, in order to check undervaluation through the legal route.
Currently, several products manufactured by job workers are sold at a huge premium in the market under big brand names. The government, however, does not get commensurate excise revenues since the value declared on the product cleared from the factory gate by the job worker is much lower. It covers only input or raw material costs and job charges.
Such undervaluation is rampant in branded pharma and textiles, which are not covered under the maximum retail price (MRP)-based levy. This is particularly evident in pharma products, where domestic companies and MNCs outsource manufacturing to job workers. Profit margins on these products are high for companies and more so for traders — particularly on medicines that are out of price control, where trade margins are often as high as 500%. It is reckoned that there will be a 20-30% jump in excise revenues if the “first point of independent sale� (i.e. from the brand owner to the stockist) becomes the basis of excise valuation on branded products.
In the pharma sector, the MRP printed on medicine packs does not include local taxes. This results in variation in MRP throughout the country, making it practically difficult to levy excise on MRP, which is in vogue with most FMCG products. A move is on to introduce uniform MRP on medicines, which requires the sanction of state governments. The introduction of VAT is expected to enable this. The government is planning to amend the excise law by introducing separate provisions for job work valuation in the excise legislation, keeping in view some of the earlier court rulings on this issue.
The Supreme Court, for instance, had ruled that excise valuation on job work should include cost of inputs, plus job charges.