The October Wish List to Kapil Sibal

At the first "Biotech CEO Summit" organized by BioSpectrum at Hyderabad on September 23, 2005, Kapil Sibal, minister of state for science and technology and ocean development, who was the chief guest had asked the diagnostic companies to provide a list of important reagents and raw materials which needs import duty exemption so as to take up the issue with the relevant government agencies.

The wish list from the diagnostic industry

There exists a serious anomaly with respect to imported and indigenous diagnostics wherein raw materials and components used by indigenous manufacturers for such products are levied customs import duty and excise duty whereas the finished products are allowed to be imported duty free. This is detrimental to indigenous manufacturing and instead encourages trading. Furthermore, it puts indigenous manufacturers at an unfair disadvantage to multinational competition. The components and raw materials used by indigenous manufacturers for the production of diagnostics needs to be exempted from Custom Import duty.

Customs duty is charged on raw materials, where as the finished product is duty exempted: They are AIDS/HIV Testing kits (General Exemption No.107, S.No.83, List 4, No.32) and Hepatitis. In this case, the finished products (HIV/AIDS Kits) are exempt from customs duty, but the raw materials required are not exempted.

Importers have to pay a hefty duty of more than 40 percent (3822.00.12). After paying hefty customs duty of over 40 percent on raw materials, how can Indian products be cost effective? Hence countries like China, Korea and Taiwan are dumping their products on Indian soil at below cost price. Therefore, the industry requests the authorities to exempt the raw materials required to manufacture all duty-exempted products (List 4 of S.No.83, Exemption No.107).

Two types of duties are levied for the same product: In General Exemption No.107, List 4 for S. No. 31, 32 for Hepatitis B antigen and HIV the customs duty is exempted and for the same in List 37 they are taxed at 5 percent.

Some listings for exempted products are outdated: In General Exemption No. 107, No.95 in the table, raw materials for making the ELISA kits are taxed at 5 percent. The list is outdated. Again the finished kits are nil duty (List 4, S.No. 36) and raw materials are taxed at 5 percent.

All reagents/ raw materials like Coagulation reagents (38.22.0090), Hematology reagents (38.22.0090), used for manufacturing all types of test kits -Biochemistry Tests, Haematology Tests and Immunology tests (such as HIV, HBsAg, Hepatitis etc) should be given customs duty exemption from the current total custom duty of 34.44 percent (inclusive of basic duty + CVD + 2 percent cess) (General Exemption No.107, List 4, Sr No.36, Sr.No.83 of the table of customs notification No 21/2002).

Similarly the industry requests the government to exempt customs duty on all types of Quality Control and Calibration Materials required in Clinical Test Labs (38.02.1091) from the present custom duty of 17.3 percent (CVD not applicable).

In addition to that even the ELISA analyzers (General Exemption No.107, List 37, Sr No.66, S.No.363 of the table of customs notification No 21/2002), ELISA Plate Washers, Haematology Analyzers, Coagulation Analyzers, used for testing of HIV, Hepatitis etc. should get the custom duty exemption.

Many companies from China, Korea and Taiwan, are dumping the diagnostic kits at below the material cost. For example, Pregnancy test, HBsAg test, HIV rapid and ELISA test. This affects the domestic manufacturers and loss of revenue to the government and loss of employment generation (Indian jobs). Therefore, the government is requested to consider imposing dumping duty on the products, which are imported below the material cost.

The government has to strictly implement the anti dumping policy in case of health care sector and especially for diagnostics sector. With no proper policy framework in place, the local diagnostic industry has to change its marketing strategy every now and then and it is detrimental for the growth of this upcoming industry.

Every one talks about abolishing the requirement of licensing and say – "License raj has gone"! This may be true in many cases, but in healthcare and diagnostics, it is still in place. Now one has to get license or NOC, even to import small quantities of raw materials for both manufacturing and R&D. For each and every item, if companies have to go to Delhi and get license, most of their time and resources are lost and in addition, precious time is also lost. Therefore, abolish the requirement of licensing/NOC to import the raw materials.

Only the Metro Airports are authorized to import the Diagnostic reagents as per the recent circular from Drugs Controller of India, which again makes it really difficult to the small manufacturing units. Please allow the industry to import the raw materials through major airports like Bangalore.

In the last budget, without any discussion, the finance ministry has changed the turnover limit for SSI Exemption. Now, if any SSI unit crosses the turnover of Rs 4 crore in the preceding year, that SSI unit will lose the SSI benefit and has to pay the duty from day one. The Rs 4 crore turnover includes all transactions, whether dutiable or not, including trading items. Before, it used to be only the dutiable items.

In today's market with very low margin, Rs 4 crore turnover is too low. Then again if we have to pay 16 percent Excise duty, then most of the SSI units will become non-profitable. This also forces the SSI units to limit the sales to below Rs.4 crore. This is penalizing the SSI units, which want to do well. Please change the provision on Excise duty – Turn Over Limit to the earlier version. Anyway, once SSIs cross the Rs 1-crore limit, they will pay the duty for the dutiable items, and the government will not lose revenue.

The indigenous diagnostic kits are levied 16 percent Excise Duty whereas imported kits are exempt of all duties. Diagnostic kits are vital for HIV AIDS, infectious diseases and other critical care applications. The positive impact of such an Excise Duty waiver will far exceed the small impact it will have on the exchequer. Moreover, it will put the indigenous diagnostic industry on a level playing field with global competition.

The government should support the exporters to overcome the competition in overseas markets from multinationals in terms of quality and price. Since we still don't have a single window clearance system in place, we are losing the orders due to time bounding conditions put by the buyer in the agreement. The government has to address this issue too.

The government should consider giving a generic exemption for each test rather than individual items. Items may change from time to time and then again the companies we have to get the approval, which is very difficult. And we may have to face many hurdles/problems from the customs and drugs control authorities at the ports.

Rather than listing the individual raw materials for exemption – say, "raw material required to make HIV kits – List may be approved by the DCI.

The government should set up a working group to sort out the discrepancies and which should also advice the authorities on these issues. Drug authorities should be trained to tackle the problems arising in this industry.