The Union commerce ministry is planning to abolish advance licensing scheme for the pharmaceutical exporters shortly. With this, the manufacturer exporters of pharmaceuticals will have to pay basic customs duty, countervailing duty, anti dumping duty, etc. for all the raw materials including packing materials upfront before executing the export orders.
Manufacturer exporters of pharmaceuticals have been enjoying the facility of duty free import of all the bulk drugs, other raw materials including packaging materials once they have the export orders in hand for the last several years. This facility has been of a great incentive for exporters as they were not to block huge amounts of money in advance towards payment of various import duties. The time taken for completing the manufacturing cycle of pharmaceutical products and other export procedures after importing various raw materials is between 80 to 100 days.
Once the export order is executed by the manufacturer can claim the refund of all the duties paid for importing bulk drugs and other raw materials. The move to abolish this years old beneficial scheme for exporters is part of the government’s policy of first pay and then get the refund. Introduction of GST regime from July 1, 2017 is stated to be another reason for this move.
Exporters are eligible for getting refund of 90 per cent of all duties paid in 7 days of execution of export obligation. The remaining 10 per cent of the refund will be given in four to five months time. Exporters are also eligible to receive 4 to 5 per cent interest on the remaining 10 per cent of the refund amount.
A serious problem manufacturer exporters is going to face with the move to abolish advance authorization scheme is the difficulty in getting raw materials from unregistered sources. Currently, under the scheme, exporters are allowed to import raw materials from unregistered sources if they are exporting formulations made from that raw materials.
As per the provisions of the Drugs &Cosmetics Act, API manufacturers supplying bulk drugs to Indian exporters have to register with Drugs Controller General of India. But, unregistered manufacturers of APIs can supply their materials to exporters under the advance licensing scheme. Exporters thus stand to lose export orders worth several crores of rupees as they cannot procure raw materials from unregistered suppliers for export purpose.
Obligation to pay anti dumping duty on import of certain APIs is yet another burden exporters have to bear with the abolition of advance licensing scheme. This is going to be quite huge as commerce ministry had imposed different rates of this duty on several APIs over the years to protect the domestic API sector.
Now, the exporters are concerned over the uncertainty of advance licenses already issued prior to July 1. Whether they will be allowed to import raw materials under the valid advance licenses after July 1 is not clear. Similarly there is no clarity on the procedures to be followed if materials are going to be received against advance licenses after July 1.