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        With VAT coming into force from 1 January, 2007, the pharmaceutical distributors are up in arms against the government for non-availability of Input Tax Credit (ITC) on the stocks held till 31 December, 2006. (The distributors have already paid 10.5 per cent tax for the stocks-in-hand).

        In the event of clearing of the stocks-in-hand during VAT regime, they have to incur loss as they have been singled out of the ITC ambit and only the first seller (C&F agent ) is eligible for claiming ITC.

        To be precise, the medicines from the manufacturer are routed through a multi-layer distribution network. Firstly, it passes on to the Clearing and Forwarding Agent and then to the super stockist, stockist and retailer to reach the end- consumer.

        Aggrieved by this stepmotherly treatment, the members of the Tamilnadu Pharmaceutical Distributors Association submitted a memorandum to the Tamilnadu Chief Minister seeking redressal of their grievances.

        Speaking to News Today, Premchand Ranka, Product Information Service Committee chairman, said that already the pharma distribution sector was plagued with problems like disparity in tax structure between the States. The issue has assumed alarming proportions. As a result, the retailers are now reluctant to lift stocks from the distributors.

        Moreover, the Drug Price Control Order in force, the products have to be sold under MRP (Maximum Retail Price) inclusive of tax under VAT regime.

        According to Elumalai of Chemists and Druggists Association, it would be a tough time for them to carry on with their business since there is every likelihood of pattern medicines shooting up. Moreover, it would not augur well for the pharma sector.

        Echoing similar views, Venkatesh, a retailer, said majority of their members had stopped lifting stocks from the stockists due this anomaly. However, the consumers aren't affected by this as there would be no change in the price of medicines.

        What is Input Tax?

        Input Tax is the tax paid on purchase by a registered dealer in course of his business for resale, use in the execution of works contract, use in processing or manufacturing.

        Who is entitled to claim Input Tax Credit?

        A registered dealer assigned with Tax Payer Identification Number (TIN) alone is entitled to claim Input Tax Credit.

        What does G Shanmugam, Joint Commissioner, Commercial Taxes( VAT implementation) have to say about the distributors' bone of contention?

        All that he can say is that the government is seriously considering their plea and something fruitful would be in store for them soon.

        Meanwhile, the State Commercial Taxes Minister S N M Upayathulla held a meeting in Tiruchi yesterday in connection with VAT implementation.

        What is quixotic is the State government is conducting VAT awareness campaigns at all levels without taking into consideration the shortfalls and complications in different categories of business.

        It is a general feeling among the trading community that VAT is a mixed bag with merits and demerits.