Petition to challenge order on cost norms

The government is likely to file a special leave petition in the Supreme Court against the Uttar Pradesh High Court order, which quashed the National Pharmaceutical Pricing Authority's notifications for fixation of norms for conversion costs and packing costs (CC and PC) for drug companies. CC and PC are the two major components of pharmaceutical companies' manufacturing expenses.

Though the High Court ruled in favour of drug companies which had challenged the NPPA's action of extending the 4.5 per cent increase in CC&PC in 2003, the government sources said the NPPA would have a strong case before the apex court.

This, they said, was based on the premise that drug companies did not petition for a review before the NPPA despite the provision to do so within 15 days of the notification, under paragraph 22 of the Drug Prices Control Order, 1995.

The drug companies led by Cipla Ltd had argued in the UP High Court that the government and the NPPA was required to failed to notify CC and PC norms review the norms every year.

There was no review, however, during the 1993-98 period and hence extending the norms to 2003 was without any application of mind. NPPA has authority to fix the CC&PC charges based on pre-set costing procedure as described under paragraph 7 of the DPCO, 1995.

NPPA sources said that the government had formed a committee in 1998 which sent questionnaire to all drug companies seeking data on production costs which would help the authority arrive at the CC&PC norms. "But, none of the companies have shared the data with us," said an official.

Following this, the committee recommended that costs be increased by 4.5 per cent in 1999. The authority implemented the committee's recommendations and deemed it good enough to be extended further in 2003.

The sources said that the UP High Court judgement, in a way, also affected the earlier price notifications of the NPPA. The primary among these was its notice to Cipla and about 20 other pharma companies to deposit 50 per cent of the amount overcharged between July 2000 and July 2003 on seven bulk drugs which were brought under the ambit of the DPCO.

The notice was, however, challenged by the companies in Bombay High Court which held that the drugs were outside the purview of price control.

Upon appeal, the Supreme Court had in August 2003 had remanded the matter back to the Bombay High Court for further and more detailed examination in light of the principles laid down by it. The apex court also permitted the government to recover 50 per cent of the amount claimed to have been overcharged.