By Team Ayurved Sutra February 10, 2014

Ayurveda drug sector caught in a VAT circus creating huge liability

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10 February, 201415 February, 2014 Team Ayurved Sutra 0 Comment

With established traditional distributors reluctant to accept Ayurveda products amid the confusion, the very practice of the traditional system of medicine is facing a hurdle.

A tax circus is robbing the Ayurveda drug sector in Kerala of its vitality, dealing a body blow to the practice of this traditional system of medicine, which has made Kerala a major global healthcare and wellness tourism destination.

Till November, 2009, all Ayurveda products had been classified as medicines and taxed accordingly. After that, the Commercial Taxes Department, without any government-level order, classified many of these products as cosmetics and imposed the value-added tax levied (VAT) for that category.

Unable to bear the burden, players in the Ayurveda sector petitioned the State government to restore the products to the medicine category from that of cosmetics. They pointed out that the AYUSH Department Welfare continued to recognize them as medicines.

State government agreed to consider the pleas and the Ayurveda medicines continued to be billed under Form 8H of VAT, showing products as medicines and supplied to the distributors. On the basis of Form 8H, the distributors did not collect any tax from the buyers.

Later, the State government issued an order to restore the medicine status of those products through a notification dated April 1, 2012. But now the Commercial Taxes Department has come out with a notification stating that the Government Order has no provision to grant medicine status with retrospective effect to those products brought under the cosmetics category earlier.

In the backdrop of this notification, the department has made its own calculations and slapped the medicine distributors with cosmetics-category VAT for the products sold between November 14, 2009, and March 31, 2012. The figure runs into several crores of rupees.

This had created a huge liability for the distributors and triggered uncertainty in the distribution network. If the government fails to issue a notification to grant medicine status with retrospective effect, the crisis will continue. Commercial Taxes Department was now contemplating bringing many Ayurveda medicines under the food category, which would further aggravate the situation. Lack of specific guidelines from the government side enabled the tax officials to give their own interpretations and impose taxes accordingly.

The Ayurveda sector in Kerala is already finding it difficult to compete with manufacturers from outside the State for reasons such as scarcity of raw materials and the high cost of labor. This had resulted in a fall in the number of Ayurveda manufacturing units in the State from 1,100 three years ago to 800 now. Another 300 units face the threat of closure soon. Only some 75 units in the State had an annual turnover of Rs. 60 lakh and above. Out of the remaining manufacturing units, only 450 had the good manufacturing practice recognition under standards set by the State government.