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Service Tax On Contract Manufacturing In
Excise Free States Likely Soon
Union Finance Ministry may impose a service tax on contract
manufacturers in excise free state zones, it is learnt. The move to levy service
tax on this group of companies in the context of heavy losses of excise duty the
government has been incurring over the years in excise free zones.
According to sources, the government had realized off late that it has been
suffering major revenue loss on account of this concession despite imposing
excise duty on MRP. A recent assessment of data, collected from various excise
free zones, has revealed that the government suffered a revenue of Rs 300 crore
so far. This loss according to sources was due to the fact that many contract
manufacturing companies were misusing the benefit given to them. The contract
manufacturers from tax-exempt states were selling the products at higher MRPs
and they earned unreasonable profits as they are not paying excise duty.
Moreover to maximize profits, traders also prefer goods from exempt states as
they are cheaper being excise free, but bear higher MRPs. Such unfair trade
practice have been bothering the finance ministry for some time and it has now
decided to set right the issue.
The excise benefit should go to companies that have set up their units to
manufacture and market their own products. The situation that is now prevailing
in the excise free states is that the contract manufacturers produce medicine
cheap but sell it at very high prices. This is a serious case of misuse of a
benefit given to SSIs, sources said.
With the election around in Himachal Pradesh, its not sure whether the Congress
would take measure that might turn unfavourable for their vote banks, but it is
up to the government to decide whether it wants to protect the interest of 300
odd manufacturers in the excise free zones or the 3,000 manufacturers who don't
enjoy the excise exemption benefits," said sources.
Although the government has been deliberating over the issue of levying a
service tax on the contract manufacturers for some time, it is only now the
finance ministry has started considering to introduce the levy, the sources
said.
(Ref : The Chronicle Pharmabiz dated June 7, 2007)
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