MUMBAI S I L I CO N VA L L E Y BENGALURU SINGAPORE NEW DELHI N E W YO R K GIFT CIT Y

Research

The Indian
Pharmaceutical
Industry
Regulatory, Legal and Tax
Overview

August 2024

© Nishith Desai Associates 2024 www.nishithdesai.com

 Research

The Indian
Pharmaceutical
Industry
Regulatory, Legal and Tax
Overview

August 2024

DMS Code: 30670.1

© Nishith Desai Associates 2024 www.nishithdesai.com

 Ranked as the ‘Most Innovative Indian Law Firm’ in the prestigious FT Innovative Lawyers Asia Pacific
Awards for multiple years. Also ranked amongst the ‘Most Innovative Asia Pacific Law Firm’ in these
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© Nishith Desai Associates 2024 www.nishithdesai.com

 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview



Disclaimer

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contained herein without seeking professional advice. The authors and the firm expressly disclaim all and
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Acknowledgements

Tanya Kukade
[email protected]

Varsha Rajesh
[email protected]

Eshika Phadke
[email protected]

Dr. Milind Antani

[email protected]

© Nishith Desai Associates 2024 Provided upon request only

 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview



Contents

Executive Summary 1

Introduction 3

India Entry Strategies 5

A. Investment Climate in India 5

B. Government Production Linked Incentives 6

C. India’s Post-Trips Intellectual Property Environment 6

D. Form of The Indian Entity 6

E. Corporate Governance in India 9

F. Anti-Corruption Framework 10

Legal and Regulatory Regime in India 11

A. Outline of Legal and Regulatory Framework 11

B. Regulatory Framework 11

C. Proposed Law on Regulation of Pharmaceutical Products 14

D. Manufacturing a Drug in India 14

E. Importing a Drug into India 15

F. Manufacture/Import of New Drugs 16

G. Clinical Trials 16

H. Product Standards 18

I. OTC and Prescription Drugs 18

J. Pharmacy 19

K. E-Pharmacy 19

L. Labeling 20

M. Shelf Life 20

N. Good Manufacturing Practices (GMP) 21

O. Pricing of Drugs and Drug Price Control Order, 2013 22

P. Advertisement and Sales Promotion 23

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview



The Anti-Trust Regulatory Framework 27

Intellectual Property Landscape 29

A. Patent Protection 29

B. Trademarks 32

Tax Regime 36

A. Direct Taxes 36

B. Indirect Taxes 48

Key Issues and Challenges in Indian Pharma Industry 50

A. Promotion and advertisement 50

B. Price Control 50

C. Labelling 50

D. Environmental Diligence 51

E. GMP Related Non-Compliances and Safety Concerns 51

F. Fixed Dose combinations 51

G. Overlap with other Industries such as Bio-Pharma and Med-Tech 52

Conclusion 53

Annexure A 54

List of Drug Licenses Under DCA 54

Annexure B 58

Targeted Timelines for Approval of License Applications 58

© Nishith Desai Associates 2024 Provided upon request only

 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Executive Summary

The Indian Pharmaceutical industry has gained momentum in the past year and has witnessed an increased
focus on encouraging research and development and innovation. Pharmaceutical companies are focussing
their resources on biotech startups and pushing for innovation to aim for continued growth in the sector. 1

The industry is expected to grow up to USD 130 billion in value by the end of 2030. 2 The domestic
pharmaceutical market grew by 6.8% in 2023. 3 In FY 2023–24, India’s drug and pharmaceutical exports
showed a notable increase of 9.67% reaching USD 27.9 billion. 4 India also has the largest number of
manufacturing sites approved by the United States Food and Drug Administration (US FDA) outside
of the United States 5 which is an important factor in boosting the global confidence in the domestically
manufactured drugs and pharmaceutical products.

The industry is typically involved in four types of businesses: marketing of generic medicines, marketing
of branded generic medicines, marketing of innovator medicines and manufacture and supply of active
pharmaceutical ingredients, which are used as ingredients in medicines as well as finished formulations.

The focus on development of new drugs began with the introduction of amendments to India’s patent regime
in 2005 which permitted patenting of pharmaceutical products. Thus, while many domestic companies are
investing substantial amounts in drug research and development, India is still not an innovator’s market.

The Indian Pharmaceutical industry is witnessing healthy foreign direct investment, amalgamations
and collaborations (such as licensing, co-development, joint distribution and joint ventures). Domestic
manufacturers are looking to tap into the international generic market which provide high margins.
The number of Abbreviated New Drug Applications (ANDA) to the US FDA is also increasing every year.
The Industry is witnessing a paradigm shift as the focus is shifting from the manufacturing of generic drugs
to drug discovery and development (Glenmark, Sun Pharma, Cadilla Healthcare and Piramal Life Sciences,
had applied for conducting clinical trials for numerous new drugs). With the passage of the New Drugs and
Clinical Trial Rules, 2019 (“CT Rules”) the clinical trial sector is also growing steadily with many choosing
India as one of the favourable trial sites when conducting global clinical trials. Reportedly, India’s clinical
trials market is expected to reach $3.15 billion by 2025. 6

1 The Evolution of Indian Pharmaceutical Industry in 2023, UNIMARCK, January 29, 2024, accessible at:
https://unimarckpharma.com/the-growth-of-indian-pharma-industry-in-2023-insights-and-statistics/, (Last accessed on April 22, 2024).
2 Indian pharma in 2023: Industry experts give big thumbs up to the sector; here’s what they are saying, Business Today, available at :
https://www.businesstoday.in/industry/pharma/story/indian-pharma-in-2023-industry-experts-give-big-thumbs-up-to-the-sector-heres-what-
they-are-saying-357290-2022-12-21, (Last accessed on February 10, 2023).
3 Price push: Domestic pharma market grew by 6.8% in 2023, shows data, Business Standard, available at: https://www.business-standard.com/
industry/news/domestic-pharmaceutical-market-grew-by-6-8-in-2023-shows-data-124011100758_1.html, (Last accessed on February 10, 2023).
4 India’s pharma exports reach US$ 27.9bn in FY24, Economic Diplomacy Division, April 24, 2024, accessible at:
https://indbiz.gov.in/indias-pharma-exports-reach-us-27-9-bn-in-fy24/#:~:text=In%20the%20fiscal%20year%202023,3%25%20dip%20in%20
total%20exports, (Last accessed on May 16, 2024).
5 Report by United States Food and Drug Administration on the State of Pharmaceutical Quality, available at:
https://WWW.FDA.GOV/MEDIA/125001/download, (Last accessed on February 10, 2023).
6 Fortune India, India now prime destination for big pharma’s global clinical trials,:
https://www.fortuneindia.com/enterprise/india-now-prime-destination-for-big-pharmas-global-clinical-trials/107141,
(Last accessed on February 10, 2023).

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Executive Summary 

The pharmaceutical industry, like all industries related to the healthcare sector, is heavily regulated.
Right from manufacture of drugs to advertisement and promotion, each step in the drug manufacturing
and marketing process is regulated. India’s patent regime also contains specific provisions regulating
pharmaceutical patents and the sector has seen some significant anti-trust issues on the subject of retail sale
of drugs.

The coming decade is expected to bring new highs for the pharmaceutical sector. Backed by strong intellectual
property and regulatory framework, coupled with production linked incentives the Indian pharmaceutical
industry seems poised on the edge of success.

© Nishith Desai Associates 2024 Provided upon request only 2

 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Introduction

The Indian pharmaceutical industry has been witnessing significant growth over the past few years and is
expected to grow to USD 130 billion in value by the end of 2030. 1 Generics, over the counter drugs, biosimilars
and biologics, are some of the key segments gaining traction in the industry. The biosimilars market
is estimated to grow at a CAGR of 22% to become USD 12 billion by 2025. 2

For a global pharmaceutical company seeking to enter the Indian pharmaceutical market today, the
opportunities are exciting, and the potential is tremendous. Several factors attract global pharmaceutical
companies to India:

§ Low cost of production due to a variety of factors including relatively lower labour costs and raw material
costs;

§ Diverse market not only for life saving drugs but also for lifestyle drugs;

§ Potential for conducting research and development activities in India – India has more than 300 medical
colleges and over 20,000 hospitals;

§ Existing manufacturing capability to produce active pharmaceutical ingredients (APIs) as well as

intermediates at lower cost while maintaining quality standards;

§ India has a maximum number of US-FDA approved plants outside the US;

§ Ease of conducting clinical trials and bioavailability and bioequivalence studies due to India’s ability
to provide speedier and less expensive trials without compromising quality and the availability of a vast
patient pool.

India has also witnessed a keen interest on behalf of global pharmaceutical companies, seeking to either
establish operations in India for research and development, manufacturing or distribution or to enter into
collaborations for the same. India’s low-cost research and development abilities help companies optimize
costs in a shrinking economy.

Co-development arrangements between Indian and multinational pharmaceutical companies have created
a busy atmosphere in research laboratories in India. The Indian pharmaceutical market is witnessing a rise
in collaborations with global companies such as Glenmark Pharmaceuticals, GlaxoSmithKline (GSK), Merck
and Eli Lilly. In 2018, within a span of a month, Glenmark announced an exclusive licensing agreement with
Australian company Seqirus for an allergy drug and another with Chinese biopharmaceutical firm Harbour
Biomed for its oncology molecule. Piramal Life Science Ltd (PLS) and Eli Lilly and Company have signed
a landmark new drug development collaboration. Separately, Ranbaxy and GSK have launched a New Drug
Discovery Research team to advance into pre-clinical investigation in the chronic obstructive pulmonary
disease (COPD) and other anti-infectives therapeutic areas. PLS also initiated drug discovery efforts with
Merck & Co. to discover and develop new drugs in oncology. Zydus Lifesciences entered into a new drug
discovery and development agreement with Eli Lilly to develop potential new drugs to cure cardiovascular
disease. India is also becoming a hub for late-phase research.

1 Business Today, Indian pharma in 2023: Industry experts give big thumbs up to the sector; here’s what they are saying, available at:
https://www.businesstoday.in/industry/pharma/story/indian-pharma-in-2023-industry-experts-give-big-thumbs-up-to-the-sector-heres-what-
they-are-saying-357290-2022-12-21, (Last accessed on February 10, 2023).
2 IBEF, Pharma Industry, accessible at: https://www.ibef.org/industry/pharmaceutical-india, (Last accessed on June 10, 2024).

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Introduction

Johnson & Johnson (J&J) announced its plans to make India a global hub for late-phase development
of its new drugs. With this initiative, all future new drugs and compounds from J&J will undergo final
pre-production testing in India. Recently, Torrent announced entering into a non-exclusive patent licensing
agreement with Takeda for sale of its drug Vonoprazan in India. 3 Domestic companies are getting more
involved in such collaborative arrangements.

For a trans-national entity seeking a presence in India, whether directly or through contractual arrangement,
structuring of the investment arrangement from a tax and regulatory perspective is very critical. This is
especially true because the Indian pharmaceutical market has become the hotbed of M&A activity. The
past year witnessed a surge in M&A deals given the saturation of patenting opportunities and most patents
of pharmaceutical companies likely to expire in the next few years, big pharma companies are looking
to maximize the opportunities through dealmaking. The sector witnessed over 116 M&A deals worth
USD 191 billion in the past year. 4 Some of the noteworthy ones are the merger of Bristol-Myers Squibb and
Celgene Corporation leading to the creation of the largest biopharmaceutical company globally; acquisition
of Bioverativ by Sanofi in the biopharmaceutical space given that the company is focused on rare blood
disorders; etc.

Further e-commerce opportunities in the pharmaceutical sector are on the rise bringing within its ambit
the online sale of pharmaceutical products and creating an attractive stream for investments and businesses.
Doorstep delivery of medicines paved the way for e-pharmacies in the country which at present, run parallel
to brick-and-mortar pharmacies until a legislation in this regard is introduced in the country.

On the surface, Indian law appears to be a complex set of regulations, notifications and approval requirements.
However, with steps that India has already taken to honor its World Trade Organization (WTO) commitments,
combined with the liberalization and the relaxation of the import-export policy, foreign companies seeking to
enter this space will experience that most of the restrictions that existed on issues like pricing and licensing
have now been relaxed to the extent that there is now a level-playing field for global and Indian companies
in the Indian market.

In this paper we have outlined the entity structures, the tax regime, both direct and indirect, affecting the
structuring of Indian operations, the regulatory aspects and the intellectual property issues that affect
the pharmaceutical and life sciences industry.

3 Torrent Pharma signs non-exclusive patent licensing pact with Takeda Pharma for Vonoprazan, ET, June 5, 2024, (Last accessed on June 10, 2024).
4 How life sciences can make the right deals in a time of change, EY, January 8, 2024, accessible at:
https://www.ey.com/en_gl/insights/life-sciences/mergers-acquisitions-firepower-report, (Last accessed on June 10, 2024).

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

India Entry Strategies

A basic understanding of the Indian legal system is a pre-requisite to do business in the pharmaceutical
sector in India. International pharma companies or investors seeking to make investments in Indian
pharma companies should structure their activities on the following three pillars:

Strategy Law Tax

§ Observing the economic and polit- § Exchange Control Laws: Primarily § Domestic Taxation Laws: The Income
ical environment in India from the the Foreign Exchange Management Tax Act, 1961; Goods and Services
perspective of the investment Act, 1999 and numerous circulars, Tax and customs, etc.
notifications and press notes issued
under the act.

§ Understanding the ability of the § Corporate Laws: Primarily the § International Tax Treaties: Treaties
investor to carry out operations in Companies Act, 2013 and the with favorable jurisdictions such
India, the location of its customers, regulations laid down by the as Mauritius, Singapore and the
the quality and location of its work- Securities and Exchanges Board of Netherlands.
force India (“SEBI”) for listed companies
in India
§ Sector Specific Laws: Drugs &
Cosmetics Act 1940 and the Drugs
Rules, 1945, The Patents Act,
1970and other legislations, regu-
lations and guidelines that impact
the pharma industry

A. Investment Climate in India

By and large foreign direct investments are now permitted in almost all the sectors in India without obtaining
prior regulatory approvals (i.e. under the “automatic route”) barring some exceptional cases like defense,
housing and real estate, print media, etc. (commonly referred to as the “negative list”). If the investment is not
in accordance with the prescribed guidelines or if the activity falls under the negative list, prior approval
must be obtained from the concerned department (“approval route”).

In case of the pharmaceutical sector, foreign direct investment is permitted up to 100% through the automatic
route. For Brownfield pharmaceutical projects, an FDI of upto 74% is allowed through the automatic route,
beyond which an approval is required to be sought from the Department of Pharmaceuticals. It must
be noted that a non-compete condition with the existing shareholders is no longer allowed except in special
circumstances at the discretion of the government regulator. The Central Government also has the right
to add new conditions to an investment if the investor proposes to acquire more than 74% of an existing
pharmaceutical company. However, there is no prior permission required to incorporate a wholly owned
subsidiary in India.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

India Entry Strategies

B. Government Production Linked Incentives

In the recent past, given the increased focus on domestic innovation and manufacturing, the Government has
introduced various production linked incentive (“PLI”) schemes. In 2020, the Government announced the PLI
Scheme for Promotion of Domestic Manufacturing of critical Key Starting Materials (KSMs)/ Drug Intermediates
and Active Pharmaceutical Ingredients (APIs) in the Country with a financial outlay of approximately
USD 841 million to boost India’s manufacturing capacity, elevate investment and diversify product offerings
in the sector.

Further, in 2022, the Government launched the Scheme for Strengthening of Pharmaceuticals Industry with
an object to address demands of support required to existing Pharma clusters and Micro, Small and Medium
Enterprises to improve their productivity, quality and sustainability. This scheme has a financial outlay
of USD 61 million.

C. India’s Post-Trips Intellectual Property Environment

In March 2005, India’s patent law was amended to incorporate India’s obligations under World Trade
Organization (WTO) regulations and, specifically, the Trade Related Aspects of Intellectual Property Rights
Agreement (“TRIPS”). Prior to the adoption of TRIPS, protection of intellectual property rights (IPRs)
in India was of concern to global pharmaceutical companies seeking to enter India. Post-TRIPS, India has
well-established statutory, administrative, and judicial frameworks to safeguard IPRs.

A patented invention (including products) is now given twenty years of protection in India. Well-known
international trademarks such as Volvo and Whirlpool have been protected in India through judicial decisions
even when they were not registered in India. Computer software companies have successfully curtailed piracy
through court orders. Computer databases and software programs have been protected under copyright.
Computer programs having technical applications to industry and computer programs in combination with
hardware can now be patented in India. Though trade secrets and know-how are not protected by any legislation,
they are protected under the common law and through contractual obligations. The courts, on the ground of
breach of confidentiality, accord protection to confidential information and trade secrets until the Protection
of Trade Secrets Bill, 2024 is passed by the parliament.

India’s patent law is also well placed to provide protection for pharmaceutical products developed and
manufactured through innovative processes such as 3D printing. This is because, India recognizes both
product and process patents for pharmaceutical products.

D. Form of The Indian Entity

Depending upon the proposed operations in India, the foreign pharma companies may consider setting one
of the following entities, which may either be unincorporated or incorporated.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

India Entry Strategies

I. Unincorporated Entities

A foreign company can use unincorporated entities to do business in India via ‘offices’ of certain types. These
options are as follows:

A. Liaison Office

Setting up a liaison office in a sector in which 100 percent FDI is allowed under the automatic route requires
the prior consent of the Authorized Dealer (“AD”). 1 For the remaining sectors, RBI grants its approval after
consultation with the Ministry of Finance. A liaison office acts as a representative of the parent foreign company
in India.

However, a liaison office cannot undertake any commercial activities and must maintain itself from the
remittances received from its parent foreign company. The approval for setting up a liaison office is generally
valid for three years and can be extended by making an application to AD before the date of expiry of validity.
It is an option usually preferred by foreign companies that wish to explore business opportunities in India.

B. Branch Office

Similar to a liaison office, the branch office of a foreign company in India must be set up with the prior consent
of the AD 2 for sectors under which 100 percent FDI is permissible under automatic route, with approval under
other sectors accorded after consultation with the Ministry of Finance. It can represent the foreign parent
company in India and act as its buying or selling agent in India. However, a branch office cannot carry out
any retail, manufacturing or processing activities. The branch office is permitted to remit surplus revenues
to its foreign parent company subject to the taxes applicable. Operations of a branch office are restricted due
to limitations on activities that it can undertake. The tax on branch offices is 40% plus applicable surcharges
and the education cess. It is an option that is useful for companies that intend to undertake research and
development activities in India.

C. Project Office

A foreign company, subject to obtaining approval from the AD, may set up a project office in India under the
automatic route subject to certain conditions being fulfilled including the existence of a contract with an Indian
company to execute a project in India. A project office is permitted to operate a bank account in India and may
remit surplus revenue from the project to the foreign parent company. The tax on project offices is 40 percent
plus applicable surcharges and the education cess. Project offices are generally preferred by companies engaged
in one-time turnkey or installation projects.

Other unincorporated entities such as partnerships or trusts are not usually recommended structures for
investment, as there are certain restrictions on the foreign direct investment in such structures.

1 Application made from certain countries as well as for certain sectors still requires approval of the RBI. Available at: https://www.rbi.org.in/Scripts/
BS_ViewMasDirections.aspx?id=10404#1, (Last accessed on February 10, 2023).
2 Application made from certain countries as well as for certain sectors still requires approval of the RBI. Available at:https://www.rbi.rg.in/Scripts/
BS_ViewMasDirections.aspx?id=10404#1F, (Last accessed on February 10, 2023).

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

India Entry Strategies

II. Incorporated Entities

Incorporated entities in India are governed by the provisions of the Companies Act, 2013 or the Limited Liability
Partnership Act, 2008.

A. Limited Liability Partnership (“LLP”)

An LLP is a form of business entity that permits individual partners to be shielded from the liabilities created
by another partner’s business decision or misconduct. In India, LLPs are governed by the Limited Liability
Partnership Act, 2008. LLP is a body corporate and exists as a legal person separate from its partners.

B. Limited liability Company

Companies may either be ‘private limited companies’ or ‘public limited companies’.

i. Private Limited Company

A private limited company has certain distinguishing characteristics. It must, in its articles of association,
restrict the right to transfer shares and prohibit any invitation to the public to subscribe to the securities
of the company. The number of members in a private limited company is a minimum of 2 and a maximum
of 200 (excluding the present and past employees of the company).

Under the Companies Act, 2013 a natural person who is an Indian citizen and resident in India can also
incorporate a one-person company. However, it shall be required to convert itself into a public or private
company, in case paid-up share capital of the company is increased beyond INR 5 million or its average annual
turnover exceeds INR 20 million.

ii. Public Limited Company

A public limited company is defined as a company that is not a private company. However, private companies
that are subsidiaries of a public company would be considered to be public companies. A public limited
company is required to have a minimum of 7 members. There is no restriction on the number of shareholders
of a public company and a public company may invite public to subscribe to its securities. A public limited
company may also list its shares on a recognized stock exchange by way of an Initial Public Offering. Every
listed company shall maintain public shareholding of at least 25% (with a maximum period of 12 months
to restore the same from the date of a fall).

Between an LLP and a Limited Liability Company, an LLP structure may be less favorable for a pharmaceutical
manufacturing company given the restrictions applicable on an LLP in receiving foreign investment under
the present foreign direct investment policy.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

India Entry Strategies

C. Advantages and Disadvantages of a Private Company

i. Advantages
§ Not as stringently regulated as a public company.

§ More flexibility than public companies in conducting operations, including the management of the
company, issuance of different types of securities and the payment of managerial remuneration.

§ Faster incorporation process.

ii. Disadvantages
§ Restrictions on invitation to the public to subscribe to securities.

§ Limited exit options.

We have observed that most of the pharmaceutical companies consider incorporating a company in India
based on the scope of services the company intends to provide in India. Another common trend observed
in the pharmaceutical sector is where pharma companies enter into a direct marketing and distribution
arrangement with distributors in India either exclusively or non-exclusively for the distribution of the
products of the company in India. In the distributorship model, the foreign company can bring the product
to Indian markets without having to setup an entity in India. It has also been observed that the trend of joint
ventures between pharmaceutical companies is emerging fast either for co-development or for manufacturing,
marketing and distribution of products.

E. Corporate Governance in India

Most global pharmaceutical companies would adhere to their corporate governance policies, which are usually
formulated on a worldwide basis. In the past, some global corporations have faced difficulties in India due to
the vast difference in business practices in India and the country in which these companies have a principal
place of business. It has also made companies susceptible to internal investigations on allegations of violations
of corporate governance policies in the course of business of the companies.

However, this scenario is changing with India implementing policies to increase the ease of doing business
in India. These policies include the removal of the strict licensing requirements, the reduction of tax rates and
relaxation of exchange controls, all of which have significantly reduced the potential for bribery and corruption
and have brought about greater transparency in the governmental and regulatory systems.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

India Entry Strategies

F. Anti-Corruption Framework

The Prevention of Corruption Act, 1988 (“PCA”) is India’s primary anti-corruption legislation. The PCA was
amended significantly in 2018 to bring the law up to speed with current times. Some unique features of PCA,
especially while comparing it to the UK Bribery Act and Foreign Corrupt Practices Act, 1977, are:

i. The PCA criminalizes the offence of offering any ‘undue advantage’ to a public servant only and the receipt
of such ‘undue advantage’ by the public servant. Due to this, both person offering and accepting the ‘undue
advantage’ may be held liable.

ii. The scope of the term ‘public servant’ is broad enough to cover anyone who is performing a public duty
or is receiving public funds. It applies to both individuals as well as commercial organizations.

iii. The PCA does not criminalize corrupt practices amongst private entities such as payments made beyond
a contract, or payments made to fraudulently secure contracts in the private sector. It also does not
criminalize bribes paid to foreign government officials or official of a public international organization.

iv. It does not make any distinction between illegal gratification and facilitation payment.

v. The term ‘undue advantage’ includes all gratification other than legal remuneration due to the public
servant.

Commercial organizations are now specifically covered under the PCA where even officials in charge
of such commercial organizations may be punished. Given the rise in interactions between companies
and government officials for public procurement purposes, it has become imperative for companies to put
in place (and regularly revise) stringent anti-corruption and anti-bribery policies, mechanisms for internal
checks, and provide refresher trainings for employees on the do’s and don’ts of interacting with government
bodies, especially for functions such as regulatory affairs, government and public affairs, government
procurement, etc. where the company through its employees has direct or indirect interface with the
government.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Legal and Regulatory Regime in India

A. Outline of Legal and Regulatory Framework

The legal and regulatory framework under which pharmaceutical business is carried out comprises mainly
of the following laws:

1. Drugs and Cosmetics Act, 1940

2. Drugs Rules, 1945;

3. New Drugs and Clinical Trial Rules, 2019;

4. Essential Commodities Act, 1955 and Drugs (Price Control) Order, 2013 (DPCO);

5. The Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954;

6. The Drugs and Magic Remedies (Objectionable Advertisements) Rules, 1955;

7. The Narcotic Drugs and Psychotropic Substances Act, 1985;

8. Patents Act, 1970;

9. Trade Marks Act, 1999;

10. Competition Act, 2002.

B. Regulatory Framework

The primary statute that regulates the Indian pharmaceutical industry is the Drugs and Cosmetics Act, 1940
(“DCA”) and the rules framed thereunder viz. Drugs and Cosmetics Rules, 1945 (“DCR”) and the New Drugs
and Clinical Trial Rules, 2019 (“CT Rules”).

The DCA, DCR and the CT Rules seek to:

§ Regulate the clinical trial, import, manufacture, distribution and sale of drugs.

§ Ensure the availability of standard quality drugs and cosmetics to the consumer.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Legal and Regulatory Regime in India

I. Legal Definition of Drug

A drug is defined comprehensively under the DCA. 1 The definition of a drug includes medicines that are
meant for internal as well as external use including substances used for the diagnosis, treatment or prevention
of disease. It also includes components of drugs as well as devices that are used internally or externally for
the diagnosis, treatment or prevention of disease.

Depending upon facts and circumstances of the case, the chemicals imported into India for pre-clinical studies,
may not fall under the definition of drug and subsequently the provisions of the DCA and DCR may not apply
in relation to their manufacture and import.

II. Authorities

The Central Government and the State Governments are responsible for the enforcement of the DCA. The
Central Drugs Standard Control Organization (“CDSCO”), headed by the Drug Controller General of India
(“DCGI”) is primarily responsible for coordinating the activities of the State Drugs Control Organization,
formulating policies, and ensuring uniform implementation of the DCA throughout India. The DCGI is
responsible for handling matters of product approval and standards, clinical trials, introduction of new drugs,
and import licenses for new drugs.

1 Per Section 3 (b) of the DCA : “drug” includes —

i) all medicines for internal or external use of human beings or animals and all substances intended to be used for on in the diagnosis, treatment,
mitigation or prevention of any disease or disorder in human beings or animals, including preparations applied on human body for the purpose
of repelling insects like mosquitoes;
ii) such substances (other than food) intended to affect the structure or any function of the human body or intended to be used for the destruction of
vermin or insects which cause disease in human beings or animals, as may be specified from time to time by the central government by notification
in the official gazette;
iii) all substances intended for use as components of a drug including empty gelatin capsules; and
iv) such devices intended for internal or external use in the diagnosis, treatment, mitigation or prevention of disease or disorder in human beings
or animals, as may be specified from time to time by the central government by notification in the official gazette, after consultation with the
board.”

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The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview
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4. Legal and Regulatory Regime in India

Organizational Structure of The Central Drugs Standard Control Organization (CDSCO)

Organizational Structure of the Central Drugs Standard Control Organization (CDSCO)

Drugs Controller General (I)

(Dr. Rajeev Singh Raghuvanshi)

Head Quarter Zonal Offices Sub-Zonal Offices Port/Air Port Laboratories

(New Delhi) (6) (7) Offices (13) (7)

Zonal Offices Sub-Zonal Port Offices Laboratories

New Delhi Offices Ahmedabad CDL, Kolkata
North Zone Banglore Chennai Port CDTL, Mumbai
– Ghaziabad
Varanasi Chennai Airport RDTL, Guwahati
South Zone
Goa Banglore RDTL, Chandigarh
– Chennai
Jammu Hyderabad CDL, Kasauli
West Zone
– Mumbai Indore Goa CDTL, Hyderabad
Head Quarter
East Zone Guwhati Kochi CDTL, Chennai
New Delhi – Kolkatta
Baddi Delhi *IVRI, Izatnagar
Hydrabad Zone Kolkatta Port *NIB, Noida
Ahmedabad Zone Kolkatta Air Cargo *IPC, Ghaziabad
Mumbai Air Cargo
Mumbai Nhava
Sheva
Mumbai Custom
House

Ayush Staff Staff Staff Staff Staff

Staff JDC(I) DDC(I) ADC(I) ADC(I) Director
DDC (Ayurvada) DDC(I) ADC(I) DI DI Dy. Director
DDC ADCI DI TDAs TDAs Sr. Scientific
Homeopahty) DI ADI Supporting Supporting Officer I
ADC (Ayurvada/ ADI TDAs Staff Staff Sr. Scientific
Unani/Sidha)
TDAs Supporting Officer II
Dls (Ayurvada/
Unani/Homeo/ Supporting Staff Research Officer
Sidha) Staff Sr.Scientist
Assistant
Jr. Scientist
Assistant
Supporting Staff

Source:
Source: https://cdsco.gov.in/opencms/opencms/en/About-us/Introduction
CDSCO Organization Structure

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On the other hand, the approvals required for setting up manufacturing facilities, and obtaining licenses to sell
and stock drugs are provided by the respective State Governments.

III. Licenses Required for Import, Sale, Manufacture and Loan of Drugs under
the Drugs and Cosmetics Rules 1945 2

All the license applications to be made to the DCGI may be made electronically via an online licensing
portal called SUGAM (accessible at cdscoonline.gov.in). We have provided a list of licenses under the DCA in
Annexure A.

All the above licenses are periodic and are required to be renewed. The grant and renewal of all licenses are
conditional upon the satisfaction of requirements under the DCA and DCR. The license also imposes certain
conditions, which are required to be complied with, during the subsistence of a license. The CDSCO has also

released a list of targeted timelines for approvals, as provided in Annexure B.

C. Proposed Law on Regulation of Pharmaceutical Products

In 2022, the Government released the draft of the Drugs, Medical Devices and Cosmetics Bill, 2022 (“Proposed
Drug Law”) which proposes to overhaul the existing DCA to introduc a comprehensive regime for governing
all drugs, medical devices, indigenous drugs and devices, clinical trials and marketing approvals and cosmetics
in India. It also seeks to regulate online pharmacies. It is anticipated that the Proposed Drug Law may be enacted
in 2024.

The key aspects of the Proposed Drug Law have been analysed here. 3

D. Manufacturing a Drug in India

To manufacture a drug in India, both the premise and the drug have to be licensed. Once licensed, a drug
manufactured at any place in India can be sold across the country without restriction, provided the purchaser
is either an end consumer or a business with a license to purchase the drug and the seller is authorized to sell
the drug to the purchaser.

Under the DCA, “manufacturing” includes any process (or part) for making, altering, ornamenting, finishing,
packing, labeling, breaking up or otherwise treating or adopting any drug with a view to its sale or distribution.
However, “manufacturing” does not include dispensing or packing at the retail sale level.

Since 2016, bioequivalence study for Schedule C, Schedule C (1) and Schedule X drugs is mandatory to obtain
a manufacturing license. If the drug is a new drug (discussed later), then a clinical trial may have to be undertaken
prior to the grant of a manufacturing license.

2 Available at: http://cdsco.nic.in/html/importdrugs.htm (Last accessed on February 10, 2023).

3 Draft Drugs, Medical Devices and Cosmetics Bill, 2022: Dawn of a New Era?, available at:
https://www.nishithdesai.com/SectionCategory/33/Pharma-Healthcare-Update/12/67/PharmaHealthcareUpdate/6264/1.html.

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All manufacturing licenses are perpetual in nature, and a retention fee is required to be paid after five years
for the retention of the license.

The manufacturer as well as the marketer of the drug will share the liability for the quality of the drug and
the regulatory compliances in respect of the drug under the DCR. The DCR defines marketer as:

“a person who as an agent or in any other capacity adopts any drug manufactured by another manufacturer under an
agreement for marketing of such drug by labeling or affixing his name on the label of the drug with a view for its sale and
distribution”.

Marketers are now required to enter into an agreement for sale and distribution of the drug with the manu-
facturer of the drug prior to marketing the product.

E. Importing a Drug into India

The import of goods and services into India is regulated by the Foreign Trade (Development and Regulation) Act,
1992 (“FTA”). The FTA provides that a drug may be imported into India in accordance with the provision of the
DCA and DCR.

The DCA says that to import a drug into India, the foreign manufacturing facility as well as the drug itself must
be registered with the DCGI. To register, the foreign manufacturer, or its agent i.e. the importer, is required
to submit the plant master file and drug master file in the stipulated format. Once registered, the importer
in India is required to obtain an import license from DCGI. The registration certificate and import license
is valid for three years. A drug cannot be imported without a registration certificate and import license, unless
it is being imported only for the purposes of export.

It is a requirement for the importer to be based out of India and to have either a license to manufacture any
type of drug or a license to sell drugs by wholesale. Typically, the importer is also the authorized agent for the
foreign manufacturer, responsible for the business of foreign manufacturer in India and resultant liability.
The authorized agent is appointed by way of prescribed power of attorney. It is possible that there are two
or more importers of the same drug in India.

In case the drug being imported into India is a new drug (discussed under the clinical trial section below),
the foreign manufacturer is required to obtain a marketing permission prior to applying for registration, and
the grant of such permission depends on the foreign manufacturer/importer’s ability to show that the drug
is safe and efficacious.

Before a drug is sold in India, it must comply with local labelling requirements. It is not always possible
for a drug having a global label to carry India-specific declarations before it is imported into India. In such
circumstances, a label carrying India-specific declarations on the drug package can be affixed at the custom
bonded warehouse before it is cleared for consumption in India.

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F. Manufacture/Import of New Drugs

The term “New Drug” is defined under the CT Rules as follows: 4

“new drug” means, -

i. i.A drug, including active pharmaceutical ingredient or phytopharmaceutical drug, which has not been used
in the country to any significant extent, except in accordance with the provisions of the act and the rules made
thereunder, as per conditions specified in the labelling thereof and has not been approved as safe and effica-
cious by the central licensing authority with respect to its claims; or

ii. A drug approved by the central licensing authority for certain claims and proposed to be marketed with modi-
fied or new claims including indication, route of administration, dosage and dosage form; or

iii. A fixed dose combination of two or more drugs, approved separately for certain claims and proposed to be
combined for the first time in a fixed ratio, or where the ratio of ingredients in an approved combination is
proposed to be changed with certain claims including indication, route of administration, dosage and dosage
form; or

iv. A modified or sustained release form of a drug or novel drug delivery system of any drug approved by the
central licensing authority; or

v. A vaccine, recombinant deoxyribonucleic acid (r-DNA) derived product, living modified organism, monoclonal
anti- body, stem cell derived product, gene therapeutic product or xenografts, intended to be used as drug;

EXPLANATION. – The drugs, other than drugs referred to in sub-clauses (iv) and (v), shall continue to be new
drugs for a period of four years from the date of their permission granted by the central licensing authority and the
drugs referred to in sub-clauses (iv) and (v) shall always be deemed to be new drugs.

To manufacture or import a new drug, safety and efficacy data of the new drug is required to be submitted.
Such data is generated though a clinical trial. Additionally, it must comply with the shelf-life requirements
under the DCR.

G. Clinical Trials

Like in most developed jurisdictions around the world, manufacturers and importers of new drugs must
establish the safety and efficacy of the new drug to the satisfaction of DCGI before they may be permitted
to be marketed in the territory of India. And, like most developed jurisdictions in the world, the safety and
efficacy must be established using both animal data and clinical data. Clinical trials in India are conducted
in four phases with each phase beginning upon the successful completion of the previous phase. Permission
from the CDSCO is required prior to beginning each phase of the clinical trial.

4 Rule 2(W) of CT Rules.

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There are certain unique characteristics in the Indian clinical trial regulations to be taken note of:

1. For drugs developed in India, all four phases of clinical trials are required to be conducted in India while
for drugs developed outside India, data generated during Phase I clinical trials may be submitted as part
of the application to conduct clinical trials and permission may be granted to repeat Phase I clinical trials
or commence Phase II clinical trials alongside global clinical trials; Phase I clinical trial of a new drug
developed outside India is not permitted in India.

2. The sponsor of global clinical trial also has to give an undertaking that the sponsor will apply for
a marketing authorization in respect of the new drug upon the successful completion of clinical trials.

3. The permission granted to conduct a clinical trial is valid for two years. If the trial does not commence
within this period, then a new permission has to be obtained.

4. There are extremely stringent reporting requirements in terms of format and time-period for reporting
of serious adverse event.

5. The medical management of the patient and its cost is the responsibility and liability of the sponsor for
the course of the clinical trial.

6. The compensation for clinical trial related death or injury is calculated through a formula and is enforced
by way of an administrative order.

7. Failure to provide medical management or compensation may result in debarment of the sponsor.

8. The sponsor is liable to pay compensation for the negligence of the clinical investigator.

9. There is no data exclusivity in India. An investigational new drug (i.e. first in human drug) gets limited
data exclusivity for four years after receipt of marketing approval. In these four years, any drug, which
is a copy of the investigation new drug, would also be required to submit safety and efficacy data
on its own to obtain marketing approval. However, after the expiry of four years, there is no requirement
to establish safety and efficacy by a drug which is a copy of the investigational new drug to obtain
marketing approval. Biological products such as vaccines and rDNA derived drugs are, however, treated
differently and must provide safety and efficacy irrespective of whether four years have elapsed or not.

10. The CDSCO may waive local clinical trial requirements for drugs which have been approved in countries
notified by the Ministry of Health and Family Welfare (“Health Ministry”) under Rule 101 subject to the
following:

a. No unexpected serious adverse events have been reported in respect of the drug;

b. There is no probability or evidence, on the basis of existing knowledge, of difference in the enzymes
or gene involved in the metabolism of the new drug or any factor affecting pharmacokinetics and
pharmacodynamics, safety and efficacy of the new drug, between the Indian population and the
population on which the drug was tested; and

c. The applicant for marketing authorization has given an undertaking in writing to conduct Phase IV
clinical trial to establish safety and effectiveness of the new drug/vaccine as per the design approved
by the CDSCO. However, this requirement may be relaxed by the CDSCO where the drug is indicated
for life threatening or serious diseases, or diseases of special relevance to the Indian public health,
or for a condition which has an unmet need in India (e.g. hepatitis C, H1N1 or malaria, or for rare
diseases and orphan drugs).

The CDSCO is also empowered to grant an accelerated or expedited approval for a drug taking into account
the severity, rarity, prevalence of the disease and lack of alternative treatments or the life threatening and
rare nature of the disorder respectively.

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Data management is also a key component of conducting clinical trials in India. Clinical trials require the
collection and processing of health and medical information of an individual. Information relating to an
individual’s physical, physiological, and mental health condition as well as medical records and history
is considered to be sensitive personal information under India’s data privacy legislation — the Information
Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules,
2011 (“SPDI Rules”) framed under the Information Technology Act, 2000. The current data protection
framework would continue to apply until the provisions of the Digital Personal Data Protection Act, 2023 are
brought into force and the rules for the implementation of the act are notified.

The sponsor, contract research organization, institution where the trial is being conducted and the investigator
are all required to comply with certain requirements under the SPDI Rules. Broadly, these include processing
the sensitive personal information of the trial subject under and in accordance with the terms of consent
provided by the trial subject. Further, the consent should be obtained after informing the trial subject
regarding the types of data collected, the manner in which this data may be used and with whom it may
be shared.

India has consistently attracted global clinical trials due its sizeable patient population, highly qualified and
trained medical professionals, familiarity of the population with English, state of the art medical facilities
and affordability.

We have discussed the Indian clinical trial landscape in detail in our paper here. 5

H. Product Standards

No drug can be imported, manufactured, stocked, sold or distributed unless it meets the quality and other
standards defined in the DCA. For instance, for patented or proprietary medicines (medicines not listed in the
Indian or other pharmacopoeias), the product should comply with the ingredients displayed in the prescribed
manner on the label or container and such other standards prescribed by the DCR. General standards for all
patent or proprietary medicines, tablets, capsules, liquid orals, injections and ointments have been defined by
the DCA. Drugs should not be misbranded, adulterated, or spurious.

The Central Government has the power to prohibit the import, manufacture or sale of any drug, including those
that are deemed as “irrational drug combinations”. For instance, the import and manufacture of Fenfluramine
and Dexfenfluramine is prohibited. Similarly, other banned drugs include fixed dose combinations of vitamins
with anti-inflammatory agents, tranquilizers or analgesics or tetracycline and vitamin C.

I. OTC and Prescription Drugs

The law does not make a distinction between over the counter and prescription drugs for licensing purposes
and a license is required to buy and sell both types of drugs. However, certain drugs such as paracetamol,
quinine and other anti-malaria drugs, antacid preparations etc. may be sold without a sale license. Such drugs
are specified in Schedule K of the DCR.

5 Clinical Trials in India, Nishith Desai Associates, accessible here: https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/

Clinical-Trials-in-India.pdf (Last accessed on February 10, 2023).

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Indian law does not specifically define over-the-counter (‘OTC’) drugs while the DCR provides an extensive list
of prescription drugs under Schedule H, H1 and X. The drugs which are not mentioned in the said Schedules
can be sold without a prescription by a medical professional and are generally referred to as OTC drugs.
The prescription drugs cannot be advertised in the general media.

J. Pharmacy

It is mandatory for all pharmacies to be licensed. If the pharmacy sells prescription drugs, it is mandatory
for the pharmacy to have a registered pharmacist. If it is found that a prescription was dispensed without
the presence of a registered pharmacist, then the regulatory authority has the power to order suspension
or permanent closure of the pharmacy.

The pharmacy has to keep records of the seller/manufacturer from whom it has procured medicine and the
buyer/patient to whom it has sold medicine. In case of prescription drugs, the registered pharmacist is required
to make a note of dispensation on the original prescription so that the same prescription is not re-dispensed
without medical advice.

At the time of sale of any narcotic or psychotropic drug, the registered pharmacist is required to store and preserve
one of the two prescriptions that are issued by the registered medical practitioner as per the requirement of law.

K. E-Pharmacy

Sale of medicine over the internet has recently picked up in India. At present, there are no direct rules for
selling medicines online, in absence of which the current rules for brick-and-mortar sale have to complied
with.

Therefore, the sale of medicines over the internet is facing some bad weather due to regulatory challenges
such as:

i. Acceptability of scan or photograph of an original prescription to dispense medicine;

ii. Requirement to obtain a license for offering medicines for sale over the internet;

iii. Obligation on the registered pharmacist to hand over the medicine to the patient or the caregiver;

iv. Prohibition on storing medicines by courier companies for logistics purposes without a license, etc.

The government has published draft E-pharmacy Rules, 2018 that seek to clarify the government’s position on
some of the above issues. For instance, the draft rules propose that every person who offers to sell medicines
over the internet would be required to be registered. However, the draft rules are silent on the other challenges
identified above.

On October 31, 2018, the High Court of Madras asked the Central Government to ensure that no prescription
medicine is sold online without a license. The requirement to suspend business was subsequently stayed by the
Madras High Court until final disposal of the case, given that the draft rules have already been released and
is nearing notification, and in the meantime the drug authorities were still empowered to initiate action for
illegal sale of prescription medication.

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The Delhi High Court, on the other hand, passed an interim order injuncting certain online pharmacies from
selling medicines online, without a license. In its most recent order, the Delhi High Court directed the CDSCO
to report the outcome of the stakeholder consultations held for the Draft E-Pharmacy Rules in 2018. The matter
is yet to be finally adjudicated. Subsequently, in November, the DCGI issued an order to drug controllers across
India to ensure that the interim order of the Delhi High Court is enforced. While this was widely seen as
imposing a ban on online pharmacies, the order did not explicitly ban e-pharmacies and merely required drug
controllers to ensure that drugs were not sold online without a license. Eventually, the draft E-pharmacy Rules,
2018 were not enacted due to several parallel developments owing to COVID-19 pandemic and the Proposed
Drug Law.

In March 2020, in light of the COVID-19 pandemic in India, the Health Ministry issued a notification permitting
doorstep delivery of drugs. Notably, the Notification was made under Section 26B of the D&C Act, which permits
the Central Government to regulate the manufacture, sale or distribution of a drug in public interest e.g.
in emergencies arising due to epidemic or natural calamities. It is currently unclear how long this notification
would be in effect and whether similar home delivery models would be permitted once the COVID-19 pandemic
subsides.

With the passage of the Proposed Drug Law, it is anticipated that the gap in regulation of online pharmacies
is remedied. The Proposed Drug Law mandates license requirements for sale of drugs and medical devices
through online mode. Although there are no compliances contained in the current draft of the Proposed
Drug Law for online pharmacies, the Central Government may formulate rules to regulate aspects of this
industry on it is enacted.

L. Labeling

Before a drug is sold or distributed in India, it must be labeled according to specifications outlined in the DCR.
The DCR specifies labeling standards for non-homeopathic (Part IX), homeopathic drugs (Part IX-A) and
biological and other special products (Part X). The ‘Scheduled’ drugs under the DCA are required to indicate the
particular drug’s Schedule and must specify the required warnings and additional requirements per the DCR.

In respect of non-homeopathic drugs, the DCR prescribes the pack sizes of drugs meant for retail sale, the
contents of the label such as name of the drug, a statement as to the net contents (in terms of weight, measure,
volume), the contents of the active ingredient, license number, dates of manufacture, expiry, whether the
medicine is for external or internal use, whether it is for human use or animal use, the name and address
of the manufacturer and the address of the premises where the drug has been manufactured, the batch number,
as well as the drug license number under which it is manufactured (if manufactured in India or elsewhere).
Imported products must display the expiration date and potency of the active ingredient in addition to the
import license number.

M. Shelf Life

Shelf life is the minimum validity that a drug must have at the time of its import. At the time of import into
India, a drug must have a minimum of 60% shelf life.

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N. Good Manufacturing Practices (GMP)

Every pharmaceutical company manufacturing drugs must comply with the provisions of Schedule M of the
DCR which prescribes GMP guidelines which are compliant with international GMP standards of the World
Health Organization (“WHO-GMP”). This has led to a significant increase in the contract manufacturing
activities between foreign and Indian companies, whereby Indian companies manufacture bulk drugs
or formulations for the contracting pharmaceutical company.

The GMP was brought under scrutiny amidst growing concerns of drug quality, complaints on sub-standard
drugs and risk-based assessments were carried out by the drug regulator to assess the existing quality
management systems being followed at various drug manufacturing sites in India. In furtherance of which, the
MoHFW notified the Good Manufacturing Practices and Requirements of Premises, Plant and Equipment
for Pharmaceutical Products to replace the existing GMP under Schedule M of the DCR (“Revised Schedule M”).

The Revised GMP introduces a pharmaceutical quality system including a quality risk management system,
self-inspection requirement, quality audit requirement, self-inspection, qualification and validation of
equipment, specific requirements for manufacture of hazardous products, etc. The small and large manu-
facturers are required to comply with the revised GMP and obtain the WHO-GMP certifications within the
timelines that may be prescribed.

Penalty for Selling Adulterated or Counterfeit Drugs

The MoHFW in the year 2009 notified an amendment to the DCA that attempts to strengthen the existing law
against the menace of adulterated and spurious drugs. This amendment has changed certain provisions of the
DCA that specifically relate to the offences of manufacture and trade of adulterated and spurious drugs.

Any person who is found guilty of manufacturing, sale, distribution, stocking or exhibiting or offering for
sale or distribution of adulterated or counterfeit drug will be levied with a fine not less than INR 1,000,000
or 3 times the value of the drug confiscated, whichever is higher and imprisonment for ten years. The entire
amount of fine that is realized from the person convicted for the offence of being dealing with adulterated
or counterfeit drug is paid by way of compensation, to the person who consumes the adulterated or spurious
drug in question. If the victim has died due the effect of the adulterated or spurious drug, the relative of the
victim is entitled to receive the same amount by way of compensation.

The trials for offences relating to trading in sub-standard drugs will start at the level of the Court of Session.
The appeals from the Court of Session lie to the High Court and then to the Supreme Court. A provision of
setting up special courts has been provided too and the offences that relate to adulterated drugs and spurious
drugs are now considered to be cognizable offences. A cognizable offence, under the Code of Criminal Procedure
of India, is an offence for which a police officer does not require a “warrant” (sanction of a Magistrate) to arrest.

MoHFW also has set up a “whistleblower” policy that aims to reward citizens, who provide information on
the trade and source of adulterated or counterfeit drugs.

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O. Pricing of Drugs and Drug Price Control Order, 2013

The Drug Price Control Order, 2013 (“DPCO”), has been issued by the Government of India under Section 3
of the Essential Commodities Act, 1955 (“ECA”) 6 to regulate the prices of drugs. It replaces the Drug Price
Control Order, 1995. The DPCO is administered and enforced by the National Pharmaceutical Pricing Authority
(“NPPA”). The main objective of the DPCO is to ensure the availability, at reasonable prices of essential lifesaving
and prophylactic medicines specified in the National List of Essential Medicines, 2015 (“NLEM”). 7 The NLEM
is typically revised every five years and the currently NLEM 2022 is in force. NLEM 2022 encompasses a wide
range of drugs and devices including anti-cancer drugs, patented drugs, fixed dose combinations, modified
release dosage forms etc.

Price Determination and Revision of prices

The NPPA annually fixes the price of all strengths and dosages of medicines which qualify as essential medicines
under NLEM. The manufacturers, importers and marketers of such drugs should ensure that their product
is not supplied in the market at a price higher than ceiling price notified by the NPPA. 8 Separately, the DPCO
also empowers the NPPA to also fix the price of drugs (which are not listed in the NLEM) in public interest. 9
For other drugs in respect of which a price has not been fixed (either as a Scheduled Formulation or in public
interest), the manufacturers/importers/marketers of the drugs are restricted from increasing the price of the
drug by more than 10% over any given 12-month period. 10

The Department of Pharmaceuticals notified an order on January 03, 2019 11 amending the DPCO as follows:

i. Manufacturers, importers and marketers of new drugs patented in India are exempted from price
control for a period of five years from the date of commencement of commercial marketing in India
(“New Drug Exemption”).

ii. Drugs used to treat rare diseases would be exempted from price control if the Health Ministry decides
to do so (“Orphan Drug Exemption”).

iii. The Government can source Market Based Data required under the DPCO from any pharmaceutical
market data specializing company. Earlier, the data could only be sourced from IMS Health.

iv. Government is now empowered to consider market-based data for any month for fixing prices of drugs.

6 Section 3 of the Essential Commodities Act, 1955.

7 NLEM 2022 is available at: https://main.mohfw.gov.in/newshighlights-104 (Last accessed on February 10, 2023).
8 Paragraph 13, DPCO.
9 Paragraph 19, DPCO.
10 Paragraph 20, DPCO.
11 Order dated January 03, 2019 by the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers available at:
http://pharmaceuticals.OV.IN/SITES/DEFAULT/FILES/GAZETTE%20NOTIFICATION_DPCO.PDF, (Last accessed on February 10, 2023).

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P. Advertisement and Sales Promotion

Advertisements of drugs and pharmaceuticals are also strictly regulated. The legislation does not allow
advertisement of prescription medicines in any form in any kind of media, unless with prior permission of
the central government. In addition to this restriction, making claims to provide prevention or cures of certain
diseases and conditions identified under the Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954
(“DMRA”) is also prohibited, as discussed below.

I. Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954

The DMRA regulates direct-to-consumer advertisements of drugs in India. The DMRA prohibits the publication
of advertisements of a drug in terms which may imply its use for:

i. The procurement of miscarriage in women or the prevention of conception in women; or

ii. The maintenance and improvement of the capacity of human beings for sexual pleasure; or

iii. The correction of a menstrual disorder in women; or

The diagnosis, cure, mitigation or prevention of 54 diseases and conditions identified in the schedule to the
DMRA (“Scheduled Conditions”). Some of the noteworthy diseases and conditions include cancer, cataract,
diabetes, diseases and disorders of brain and heart diseases. The MoHFW on February 03, 2020, published
a draft amendment proposing to amend the DMRA (“Proposed Amendment”). Broadly, the Proposed
Amendment:

i. alters the definition of ‘advertisements’ to specifically include advertisements made over electronic
media, the internet or websites,

ii. provides a provision under which the Ayurvedic, Siddha and Unani Technical Advisory Board
(the advisory board on the various systems of Indian medicine) may be consulted with respect to
advertisement of Ayurveda, Siddha and Unani drugs, and

iii. increases the penalties for the contravention of the DMRA. More significantly, the Proposed Amendment
expands the list of Scheduled Conditions from 54 to 79. Overall, the contribution of the Proposed
Amendment is limited to widening the list of disorders in the schedule to the DMRA. The proposed revision
in the definition of ‘advertisement’, though significant, is essentially clarificatory in nature and does
not alter the existing legal position. This is because the existing definition of ‘advertisement’ already
covers promotional campaigns made over electronic media, social networking sites and websites. This
proposed amendment has not been notified to date.

It is also worth noting, however, that in addition to the DMRA the Advertising Standards Council of India
(“ASCI”) (an industry body) is tasked with self-regulation of advertisement. All complaints of unjustified claims
made in advertisements (regardless of whether such claims are in violation of DMRA) may be submitted to the
ASCI. The validity of the complaint is adjudged for its compatibility with the ASCI’s Code for Self-Regulation
in Advertising.

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II. Product Promotions Before Healthcare Professionals

The Department of Pharmaceuticals (“DoP”) has notified the Uniform Code for Pharmaceutical Marketing
Practices (“UCPMP”) 2024, 12 in supersession of the UCPMP issued by the government in 2014. Companies
have been provided with a runway for undertaking marketing activities directed towards healthcare
professionals in compliance with certain conditions prescribed under the code to keep unethical marketing
practices in check.

The 2014 draft expressly stated the voluntary nature of applicability of the code to pharmaceutical companies
while the present version of the UCPMP has omitted such statement and the UCPMP continues to be implemented
through self-regulation by companies. However, the structuring of the code and the compliances placed on the
companies indicate intention of the DoP in ensuring compliance by pharma companies. The DoP is also likely
to assume a higher level of involvement in the monitoring and implementation of the UCPMP and may send
recommendations relating to violations of the UCPMP to any agency or authority of the Government where
the disciplinary, penal, or remedial action lies within the domain of such agency or authority.

The UCPMP provides that where specific provisions pertaining to promotional activities is not present in the
code, such activities would be regulated as per the provisions of the Indian Medical Council (Professional
Conduct, Etiquette and Ethics) Regulations, 2002 (“MCI Code”) which registered medical practitioners
in India are required to adhere to.

Moreover, several industry associations have also adopted self-regulatory codes to regulate interactions
of their members with healthcare professionals. For instance, the Organization of Pharmaceutical Producers
of India had issued a Code of Pharmaceutical Marketing Practices in 2010 which was subsequently updated
in 2019 the (“OPPI Code”). The OPPI Code has set out specific standards for the promotion of pharmaceutical
products ethically to the doctors. It is based on the International Federation of Pharmaceutical Manufacturers
and Associations (IFPMA) Code that has been in practice for the last two decades. However, the OPPI Code
is a matter of self-regulation and self-discipline on the part of the member companies.

As discussed above, in India, advertisements of prescription drugs are not permitted. Hence, pharmaceutical
companies promote medicines to doctors to convince them to prescribe their medicines with a view to increase
their companies’ sales. The sales representative of a pharmaceutical company, popularly known as a medical
representative (“MR”) plays a vital role in this process. MRs meet with doctors and explain the benefits of the
drug along with the safety and side effects of the drugs. The UCPMP requires companies to ensure the compliance
of the UCPMP by all affiliates including employees and MRs in their interactions with HCPs.

While the general provisions pertaining to promotion undertaken by pharmaceutical companies remain the
same as the 2014 draft, there are certain changes in provisions pertaining to brand reminders, continued
medical education, complaint handling, etc. Our detailed analysis of the UCPMP can be accessed here.

12 Accessible at: https://pharmaceuticals.gov.in/important-document/uniform-code-pharmaceutical-marketing-practices-ucpmp-2024-reg .

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III. Regulation of Conduct of Healthcare Professionals

A. National Medical Commission

The National Medical Commission Act, 2019 (“NMC Act”) has been enacted to replace the Indian Medical
Council Act, 1956 (“IMC Act”) as the primary legislation to regulate medical education and the medical
profession in India.

B. Code of Professional Ethics for Doctors

The MCI Code includes specific restrictive provisions for doctors and professional associations of doctors in
their relationship with the pharmaceutical and the allied health sector industry. The MCI Code was initially
enacted under the IMC Act but is now deemed to have been issued under the NMC Act by way of transitory
provisions in the NMC Act. 13 The MCI Code has imposed the following restrictions on the doctors:

§ A medical practitioner shall not receive any gift from any pharmaceutical or allied health care industry
and their sales people or representatives;

§ A medical practitioner shall not accept any travel facility inside the country or outside, including rail,
air, ship, cruise tickets, paid vacations etc. from any pharmaceutical or allied healthcare industry or their
representatives for self and family members for vacation or for attending conferences, seminars, workshops,
CME program etc. as a delegate;

§ A medical practitioner shall not accept individually any hospitality like hotel accommodation for self
and family members under any pretext;

§ A medical practitioner shall not receive any cash or monetary grants from any pharmaceutical and allied
healthcare industry for individual purposes in individual capacity under any pretext. Funding for medical
research, study etc. can only be received through approved institutions by modalities laid down by law/
rules/guidelines adopted by such approved institutions, in a transparent manner. It shall always be fully
disclosed;

§ A medical practitioner may carry out, participate in or work on research projects funded by pharmaceutical
and allied healthcare industries, after taking necessary clearances and fulfilling certain conditions;

§ A medical practitioner shall not endorse any drug or product of the industry publicly.

In case of violation of these provisions by the medical practitioners, the MCI Code provides for disciplinary
action. In the recent past, in view of the restrictions imposed, a practice of entering into consultancy arrangements
with pharmaceutical companies has developed. Under the MCI Code, a medical practitioner may work for
pharmaceutical and allied healthcare industries in advisory capacities, as consultants, as researchers,
as treating doctors or in any other professional capacity.

The pharmaceutical companies will certainly be required to change their strategy to market the medicines
to doctors and be more creative and innovative. Since MRs are actively involved in the promotion of prescription
drugs, companies will be required to conduct intensive training so that even inadvertently the code is not
violated. At present, though the UCPMP is voluntary, the MCI Code is mandatory.

13 Section 62, NMC Act.

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A review of the global practices seems to indicate that in some respects, the UCPMP and the MCI Code may
be more restrictive than the codes / regulations in other jurisdictions. However, there are certain other aspects
that are covered in other jurisdictions that are still not covered in the Indian codes. Further, some of the
provisions under the MCI Code are more onerous than that of the UCPMP. E.g., while the UCPMP permits
companies to provide assistance to HCPs for travel and events within India as a speaker, the MCI Code
prohibits doctors from accepting the same except under specific circumstances.

The National Medical Commission (“NMC”) notified the National Medical Commission Registered Medical
Practitioner (Professional Conduct) Regulations, 2023 (“NMC Code”) on August 9, 2023 to replace the MCI
Code. However, the NMC Code was put in abeyance on August 23, 2023, pursuant to representations made
by various stakeholders. The NMC Code tightened the restrictions around the conduct of registered medical
practitioners (“RMPs”) in their interactions with the industry and placed higher penalties on RMPs for
non-compliance with the code. The final version of the NMC Code that may be brought into force remains
to be seen.

IV. Bulk Drug/API/Intermediate – Contract Manufacturing and Research

India is known as the pharmacy to the world, primarily because the Indian pharmaceutical sector industry
supplies over 50 percent of global demand for various vaccines, 40 percent of generic demand in the US and
25 percent of all medicine in the UK. 14

A lot of export of medicine happens under contract manufacturing arrangements. It must be noted here that
though an active pharmaceutical ingredient or finished formulation may be manufactured strictly for export
purposes only, it is still required to be manufactured under a valid export license only. Also, depending
on the nature of the product and the destination to which the product is being shipped, an export NOC from
DCGI may be required.

India is a sought—after destination for contract research because of its highly skilled manpower and
cost- effectiveness. To manufacture a drug for contract research, a test license to manufacture is required.
To import a drug for contract research into India, a test license for import is required. The test license typically
notes the quantity of test drug that is covered by the contract and requires the license holder to destroy any
quantity of drug that is left after conclusion of the drug. After the enactment of the CT Rules, the process
of importing or manufacturing drugs for research purposes has become clearer with specific timelines
in place within which the DCGI is required to give approval for such import/manufacture.

14 Source: https://www.ibef.org/industry/indian-pharmaceuticals-industry-analysis-presentation, (Last accessed on February 10, 2023).

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The Anti-Trust Regulatory Framework

Anti-competitive agreements are prohibited by law in India. The framework for control and investigation
of anti-competitive agreements is laid out in the Competition Act, 2002 (“Competition Act”).

The provisions of Section 3(3) and 3(4) of the Act pertain to agreements entered between enterprises restricting
purchase/sale prices, curtailing supply/production of goods and services as well as entering into exclusive
supply/ distribution arrangements, creating tie-in arrangements with the intention of adversely affecting the
market. It has been held by the Competition Commission of India (“CCI”) that while determination of price
of a drug and labelling are not within the domain of the CCI, any unfair or discriminatory conduct in relation
to the drug by an entity can be assessed by it on grounds of violation of the Competition Act. 1 Thereafter,
making the adoption of internal policies on interactions with government authorities an important governance
requirement.

The pharmaceutical companies holding valid patents could enter into agreements with hospitals/pharmacists
restricting prices, or with generic drug manufacturers to stifle competition, which may lead to possible
violations under the Competition Act.

Cartels by industry associations have been widespread across jurisdictions to set standard prices for both
stockists and retailers but the same has often led to restricting prices. Although the provisions of the
Competition Act recognize protection granted under intellectual property legislations, yet associations
formed to exchange data and information serving purposes other than the protection of the right holders
could invite possible competition law violations.

Mergers and takeovers in the pharmaceutical sector have also grown considerably in the past few years.
Section 5 of the Competition Act prescribes the thresholds under which combinations shall be examined
whereas, Section 6 states that any combination which causes or is likely to cause an appreciable adverse effect
on competition within the relevant market in India shall be void. Acquisition of one or more companies by
one or more people or merger or amalgamation of enterprises is treated as ‘Combination’ of such enterprises
and Persons in the following cases when:

i. the acquisition of control, shares, voting rights or assets of an enterprise by a person; or

ii. the acquisition of control of an enterprise where the acquirer already has direct or indirect control of
another engaged in identical business; or

iii. a merger or amalgamation between or among enterprises; crosses the financial threshold stipulated in
the Competition Act.

Unless specifically exempted, the Competition Act requires every ‘Combination’ to be notified to the CCI in
the manner set out in the Competition Act read along with the CCI (Procedure in regard to the transaction
of business relating to combinations) Regulation, 2011 (“Combination Regulations”) and seek its approval
prior to effectuating the same.

1 Ashwani Kumar Singla v. Sun Pharmaceutical Industries, Case no. 17 of 2022.

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The growth of the pharmaceutical industry though protected under several IP laws, raises competition law
issues. The need to provide protection to pharmaceutical companies for their innovation is well recognized
under the Competition Act however the same is restricted by providing specific inclusions under Section 3(5)
of the Act.

In the recent past, following the precedent of EU and Asian countries like Malaysia, the CCI has shown
an inclination to launch an investigation into anti-competitive practices in the pharmaceutical industry.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Intellectual Property Landscape

A. Patent Protection

In furtherance of India’s continued efforts to comply with its commitment under the Agreement on Trade-Related
Aspects of Intellectual Property Rights, the Patents Act, 1970 (“Patents Act”) was amended three times since
1995. 1 The first amendment to India’s Patent Act was in 1999 whereby Articles 70.8 and 70.9 of TRIPS were
incorporated to provide for mailbox applications and exclusive marketing rights (EMRs). The third amendment
of 2005 introduced a product patent regime in India, which is discussed in detail later.

I. Invention

The term Invention is defined under Section 2(1) (j) of the Patents Act as “a new product or process involving
an inventive step and capable of industrial application. 2”

In India, patent rights with respect to any invention are created only upon grant of the patent by the Patent
Office following the procedure established by the Patents Act and the Rules. India follows a declarative
system with respect to patent rights. Patents are granted on a “first to file” basis (rather than “first to invent”
in the United States). The patent application can be made by either (i) the inventor or (ii) the assignee 3
or legal representatives 4 of the inventor.

II. Convention Application

India, a member of the Paris Convention, has published a list of convention countries under Section 133 of the
Patents Act. The convention application has to be filed within one year from the date of priority and has to
specify the date on which and the convention country in which the application for protection (first application)
was made. A priority document must be filed with the application. Since India is a member of the Patent
Co-operation Treaty, a National Phase Application can also be filed in India, within thirty one-months from
the priority date.

Some of the salient features are as follows:

§ The term of the patent is twenty years from the date of priority;

§ In infringement suits in relation to ‘process’ patents, the ‘burden of proof’ is reversed.

1 Although India became a signatory to the WTO (and thereby to TRIPS) in 1995, it was not required to adopt the policies of TRIPS until 2005.
2 Section 2(1)(ac) of the Patent Act: “capable of industrial application in relation to an invention means that the invention is capable of being made or
used in an industry.”
3 Section 2(1) (ab) of the Patent Act: “Assignee includes an assignee of the assignee and the legal representative of the deceased assignee and
references to the assignee of any person include references to the assignee of the legal representative or assignee of that person.
4 Section 2(1) (k) of the Patent Act: “legal representative means a person who in law represents the estate of a deceased person.”

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Section 3 of the Patents Act, carves out certain exceptions from the patentable inventions. Under Section 3 (j)
“plants and animals in whole or any part thereof (other than micro-organisms) including seeds, varieties and
species and essentially biological processes for the production of plants or animals” — cannot be patented.
This is in line with Article 27.3 of TRIPS. Thus micro-organisms, which satisfy the patentability criteria,
may be patented in India.

Section 3(d) of the Patents Act clarifies that mere discovery of a new form of a known substance, which does
not result in the enhancement of the known efficacy of that substance is not an invention and therefore not
patentable. For the purposes of this clause, salts, esters, ethers, polymorphs, metabolites, pure form, particle
size, isomers, mixtures of isomers, complexes, combinations and other derivatives of known substances are
to be considered to be the same substances, unless they differ significantly in properties with regard to efficacy.
Therefore, Swiss Claims will not be allowed in India.

III. Infringement – Bolar Provision

If a patented invention is made, constructed, used sold or imported ‘solely’ for uses reasonably related to the
development and submission of information required under any law (Indian or foreign) that regulates such
activities, then such acts do not amount to an infringement. This provision, known as the ‘Bolar provision’,
gained fresh importance in view of introduction of the product patent regime in India in 2005. A Bolar
provision allows manufacturers to begin the research and development process in a timely manner in order
to ensure that affordable equivalent generic medicines can be brought to market immediately upon the
expiry of the product patent.

IV. Parallel Imports

Import of patented products in India from a person authorized by the patentee to sell or distribute the product
does not amount to an infringement.

V. Enforcement

India has historically been viewed by the global community as a ‘poor patent enforcement’ territory. Two
provisions have been introduced that are likely to improve the patent enforcement mechanism. The first
provision, compliant with Article 34 of TRIPS, is Section 104A, which is a “reversal of burden of proof”
provision. Section 104A is an exception to the normal rule and requires that a person provide proof of any
claims or allegations made. In ‘process patent’ infringement suits, the defendant will have to prove that
he has used a process different than the ‘patented process’ in order to arrive at an identical product produced
by a ‘patented process’. Second, an amendment to Section 108 of the Act will enable the court to order
seizure, forfeiture or destruction of infringing goods and also materials and implements, used for creation
of infringing goods.

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VI. Compulsory License

One of the most controversial amendments has been on compulsory licenses (“CL”). Earlier, a CL can also
be granted if the invention has not been ‘worked’ in India or if the invention has not been worked in India
on a commercial scale due to the fact that it was imported to India. New grounds for the grant of a CL have
been inserted, which include; circumstances of national emergency; a circumstance of extreme urgency;
and cases of public non-commercial use, public health crises, relating to AIDS/ HIV, TB, malaria or other
epidemics.

A new provision 5 has been inserted in the Compulsory License chapter which provides that a license can be
granted to manufacture and export a patented product to any country having insufficient or no manufacturing
capacity in the pharmaceutical sector in order to address public health problems, provided that such compulsory
license has been granted in that country or that such country has allowed importation of the patented pharma-
ceutical products from India. The amendment seeks to implement Paragraph 6 of the Doha Declaration on TRIPS
and address public health. The amended provision will allow Indian companies to produce and export AIDS
drugs to African and South-East Asian countries.

On March 9, 2012, the Controller General of Patents Design and Trademarks of India, Mr. P.H. Kurian, marked
his last day in office with a landmark judgment granting the first ever compulsory license to an Indian generic
pharmaceutical company Natco Pharma to manufacture and sell a generic version of Bayer Corporation’s
patent protected anti-cancer drug ‘Sorafenib Tosyalte’ (NEXAVAR). 6

The government of India has also been considering compulsory licensing of cancer drugs. However, in October
2013, the patent office rejected the compulsory licensing application of BDR Pharmaceuticals to make a generic
version of the US drug maker Bristol-Myers Squibb’s anticancer drug Dasatinib, sold under the brand name
“Sprycel”, on the grounds that it did not make enough efforts to obtain voluntary licensing of the drug. 7

VII. Mandatory Annual Filing

It is mandatory under Indian patent laws to file a statement as to the extent of commercial working in Indian
Territory of a patent granted by the Indian Patent Office. The statement embodied in Form 27 of the Patents
Rules, 2003 (“Patent Rules”) is required to be filed in respect of every calendar year within three months
of the end of each year (i.e. before March 31st of every year). Non-compliance with this requirement may
invite penalty or imprisonment which may extend to six months, or with fine, or with both.

5 Section 92A Patent Act, 1970.

6 Available at: http://www.nishithdesai.com/new_hotline/ip/iplab_march2112.htm, (Last accessed on February 10, 2023).
7 Available at: http://articles.economictimes.indiatimes.com/2013-10-31/news/43561264_1_voluntary-licence-compulsory-licence-dasatinib,
(Last accessed on February 10, 2023).

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VIII. Rights Prior to the Grant

From the date of publication of the application until the date of the grant of a patent, the applicant has the like
privileges and rights as if a patent for the invention has been granted on the date of publication of the application.
However, an applicant is not entitled to institute any proceedings for infringement until the patent has been
granted.

IX. Secrecy Provisions 8

Any person resident in India is not allowed to apply for grant of patent for any invention unless either of the
following two conditions is satisfied:

§ Obtaining written permission of the Controller of Patents. The Controller is required to obtain consent
of the Central Government before granting such permission for invention relevant for defense purpose/
atomic energy. The application is to be disposed of within three months. OR

§ Patent application for the same invention has been first filed in India at least six weeks before the application
outside India and there is no direction passed under Section 35 for prohibiting/restricting publication/
communication of information relating to invention.

This section is not applicable to an invention for which an application for protection has first been filed
in a country outside India by a person resident outside India. However, this provision will apply if the first
filing is intended to be made in the US, since US applications are required to be filed by the inventors and not
assignees of the inventors.

X. Patent Linkage

There is no concept of patent linkage in India. Until 2017, there was a requirement to indicate the patent
status of a drug at the time of making an application to seek marketing approval. However, the requirement
has been removed. The licensing authority is not required to assess whether marketing of the product in question
will infringe the patent of a drug at the time of according a manufacturing license.

B. Trademarks

In India, trademarks are protected both under statutory and common law. The Trade and Merchandise Marks
Act, 1940 was India’s first legislation with respect to trademarks and was later replaced by the Trade and
Merchandise Marks Act, 1958 (TM Act, 1958). The TM Act was further updated in 1999 to comply with TRIPS
and is now known as The Trade Marks Act, 1999 (“TM Act 1999”). The TM Act 1999 allows for the registration
of service marks and three-dimensional marks.

8 Sections 35 to 43 of the Patent Act; Can you keep a secret? ECO-TIMES/2005/CAN-YOU-KEEP-A-SECRET-FEB-14-2005.HTMl.

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India follows the NICE Classification of goods and services, which is incorporated in the Schedule to the Trade
Marks Rules, 2017 (“Trade Mark Rules, 2017”) under the TM Act, 1999. 9 Pharmaceutical products are covered
under Class-5, cosmetics under Class-3 and veterinary preparation under Class–1 and Class–5. Class–44
covers the services for Medical services, veterinary services and cosmetics; and Class-42 covers Scientific and
technological services and research and design relating thereto. 10

The TM Act 1999 provides a procedure to search trademarks. It is a prudent practice that often prevents
potential litigation or opposition to conduct the search for conflicting trademarks (whether registered
or pending) before using or applying for any trademark.

Any registered trademark must fulfill certain conditions. The TM Act 1999 has set forth absolute and relative
grounds of refusal of trademark registration. These grounds are akin to the provisions of the UK Trade Mark
Act of 1994. The trademark can be registered even if the mark is proposed to be used in India i.e. even if prior
to the date of application no goods have been sold under the applied trademark. The term of registration and
renewal is ten years. Foreign companies can license trademarks in India under the proper license/Registered
User Agreement.

I. Well-Known Trademark

The concept of “well-known trademark” has been recognized under the TM Act 1999. A well-known trademark
prohibits registration of a mark which is merely a reproduction or imitation of a well-known mark, even
if used in connection with different goods or services. The Trade Mark Rules, 2017 provide applicants with
the opportunity to apply for recognition of their marks as “Well-Known Trademarks” in India. The Trade Marks
Registry has issued guidelines regarding the procedure to file for recognition of a trademark as a Well-Known
Trademark on May 22, 2017.

II. Unregistered Trademark

A trademark can be used without registration and can be protected under common law but not under the
statutory law by bringing a suit for passing off. Recently Indian courts have held that copying international
names (even if the product is not made in India) is not permissible. Several international companies are
engaged in trademark litigation in India, including IBM, Apple, Microsoft, Dunhill, Whirlpool, Sony and
Cartier.

9 Classes of Goods and Services: CLASSES 1 to 34 cover goods while CLASSES 35 to 45 cover services.
10 Available at: http://support.dialog.com/techdocs/international_class_codes_tmarks.pdf, (Last accessed on February 10, 2023).

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III. Landmark Case Law: Cadila Health Care Ltd. vs. Cadila Pharmaceuticals Ltd.
(Decided on March 26, 2001) 11

This case involves two companies which had taken over the Cadila group. Both companies were allowed to use
the name. The appellant was selling a tablet named falcigo and the respondent came out with its own tablet
called falcitab. Falcigo was manufactured for the treatment of cerebral malaria called falcipharum and the
appellant got it registered with the Trade Marks Registry and got permission from the Drugs Controller of India
by Oct 1996. The respondent got permission from the Drugs Controller to manufacture a drug containing
mefloquine hydrochloride in April 1997. This drug was also used for the treatment of falcipharum. The appellant
sought an injunction from the court against the respondent’s medicine as it claimed that the same would be
passed off as their drug as there was a confusing similarity and the drugs were medicines of last resort. The
respondents claimed that the term ‘falci’ was derived from the disease which the medicine was intended to cure
and also these medicines were sold to hospitals and clinics and could not be sold over the counter. Hence the
chance of confusion and deception was very remote.

The court pointed out that due to the lack of knowledge of the English language in India and therefore a stricter
approach should be adopted while applying the test to judge the possibility of confusion of one medicinal
product for another by the consumer. The court also stated that measures should be more stringent when
it comes to medicines of last resort. The court pointed out the Drugs and Cosmetics Act, section 17B where
an imitation or resemblance of another drug in a manner likely to deceive is regarded as a spurious drug.
Section 8 of Trade Marks Act states that no trademark or part of any trademark shall be registered which
consists of, or contains, any scandalous design or any matter the use of which would by reason of its being
‘likely to deceive or cause confusion’. This creates direct implications for competition where usurpation
of part of therapeutic names by competitors. Moreover, it is relevant in this context that prescription drugs
may not create consumer confusion since the doctor is knowledgeable enough as compared to the average
consumer. The Court stated that authorities before granting permission to manufacture a drug under a trade
must be satisfied that there is no confusion or deception in the market. The court laid certain factors to be
considered while deciding a question on deceptive similarity: the nature of marks- word, label or composite;
degree of resemblance, phonetic similarity, similarity in idea; nature of goods; Similarity in nature, perfor-
mance and character of goods; class of purchasers (intelligence, education, degree of care); mode of purchasing
goods; other surrounding circumstances.

IV. Trademarks Under The DCA

There is no obligation on the CDSCO to verify whether the brand name of a drug infringes the trademark
of another person under the TM Act 1999. However, the Health Ministry, by way of a notification dated
November 06, 2019, amended the DCR to require manufacturers to use brand names that are not similar to
other brand names or trade names of drugs already in existence as a condition for obtaining the manufacturing
license. 12 The amendment also requires manufacturers to provide an undertaking to the relevant authority
to the effect that the manufacturer has already undertaken a search of the proposed brand name in the
trademarks registry, the central database maintained by the drug regulator, literature and reference books

11 Available at: http://www.cci.gov.in/images/media/completed/pharmind230611.pdf, (Last accessed on February 10, 2023).

12 Notification dated November 06, 2019 by the Health Ministry, available at: https://cdsco.gov.in/opencms/opencms/system/modules/CDSCO.WEB/
elements/download_file_division.jsp?num_id=NTIwNg, (Last accessed on February 10, 2023).

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Intellectual Property Landscape

on drug formulations as well as the internet and is not aware of the existence of any drug with the same
or similar proposed brand name.

V. Biological Diversity and IP Considerations

The Biological Diversity Act, 2002 (“Biodiversity Act”) aims to ensure the conservation of biological diversity
in India, sustainable use of its components and fair and equitable sharing of the benefits arising out of the use
of biological resources. “Biological diversity” means the variability among living organisms from all sources
and the ecological complexes of which they are part and includes diversity within species or between species
and of eco-systems. “Biological resources” means plants, animals and micro-organisms or parts thereof, their
genetic material and by-products (excluding value added products) with actual or potential use or value but
does not include human genetic material. Only selective provisions of the Biodiversity Act, 2002 namely,
definitions provisions, provisions relating to the constitution of the National Biodiversity Authority (“NBA”)
and rule-making powers of Government have been brought into force with effect from October 1, 2003.
NBA will regulate the commercial/other uses of biodiversity by both Indian and non-Indian entities. Prior to
applying for any IPR in respect of biological resources the applicant will be required to obtain approval of NBA.

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Tax Regime

A. Direct Taxes

I. General Overview

Taxation of income in India is governed by the provisions of the Income Tax Act, 1961 (“ITA”) as amended
annually by the Finance Acts. Under the ITA, residents are subject to tax in India on their worldwide income,
whereas non-residents are taxed only on Indian source income i.e. income that accrues or arises in India,
is deemed to accrue or arise in India or which is received or is deemed to be received in India. A company
is said to be resident in India if it is incorporated in India or its place of effective management (“POEM”)
is located in India. In this regard, the Central Board of Direct Taxes (“CBDT”) recently released the final
guidelines for the determination of POEM. (Please click here to read our hotline on the same).

Section 9 of the ITA deems certain income of non-residents to be Indian source income. Under section 9(1),
“capital gains” are considered to have their source in India and are taxable in India if they arise directly
or indirectly, through the transfer of a capital asset situated in India. Similarly, the “business income”
of a non-resident is taxable in India only if it accrues or arises, directly or indirectly, through or from any
business connection in India. The Indian tax rates applicable to non-residents could be up to 40% (all tax
rates provided herein are the exclusion of surcharge and cess discussed below) on taxable business income
and capital gains.

Section 90(2) of the ITA is a beneficial provision which states that, where the taxpayer is situated in a country
with which India has a double tax avoidance agreement (“Indian Tax Treaty”), the provisions of the ITA
apply only to the extent that they are more beneficial to the taxpayer. Rules under Indian Tax Treaties
are generally more beneficial to the taxpayer than those under domestic law (ITA) and hence it is typically
advantageous for a non-resident taxpayer to structure his investments or business through a jurisdiction
which has signed an Indian Tax Treaty.

In recent times, the Indian income tax authorities have been adopting an aggressive approach to transactions
where any form of exemption from taxation is sought by the taxpayer. Their approach is even more hostile
when the transaction in question has an offshore element to it. Hence, it has become critical to ensure that
offshore transactions are structured in a manner such that legitimate tax exemptions are not challenged
by the tax department.

Before delving into specific tax issues concerning contract research and manufacturing, set out below is
a snapshot of the taxation regime in India. The tax rates mentioned in this section are exclusive of applicable
surcharge and education cess, unless otherwise specified. The surcharge applicable to income generated by
resident companies for the financial year is 7% where the income exceeds INR 10 Million but does not exceed
INR 100 Million and 12% where the income exceeds INR 100 Million. Additionally, the surcharge applicable
to income generated by companies other than domestic companies, for the financial year is 2% only when
the income exceeds INR 10 Million but does not exceed INR 100 Million and 5% when the income exceeds
INR 100 Million.

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A. Taxes Applicable to Companies

Resident companies are taxed at the rate of 30%, while non-resident companies are taxed at the rate of 40%.
A minimum alternative tax is payable by residents, and in certain circumstances, non-resident companies
at the rate of around 18.5%. The corporate tax rate for domestic companies whose total turnover or gross
receipts does not exceed INR 400 million (approx. USD 5.5 million) is 25%.

Further, on September 20, 2019, the Government promulgated the Taxation Laws (Amendment) Ordinance
2019, to primarily reduce corporate tax rates as a knee-jerk reaction to India’s economic slowdown. (‘Ordinance’)
effective from April, 2019. As per the Ordinance, domestic companies may choose to be taxed at the effective
rate of 25.17% under the newly introduced section 115BAA of the ITA subject to certain conditions such as;

i. total income is computed without claiming certain specified deductions and exemptions under the
Income-tax Act, 1961 (‘Deductions’);

ii. the company shall not be allowed to set off any carried forward losses from earlier assessment years if
such loss is attributable to the Deductions;

iii. the company claims depreciation in the manner prescribed barring any depreciation in respect of plant
and machinery;

iv. once exercised, the option to be taxed under this provision cannot be withdrawn and will continue to
apply for subsequent assessment years etc.

The Ordinance also introduced section 115BAB to the ITA, as per which new manufacturing companies set up
on or after October 1, 2019 may avail an effective tax rate of 17.16% subject to prescribed conditions, which
are broadly similar to the conditions applicable for availing section 115BAA. Non-resident companies are
taxed at the rate of about 42% (if net income is in the range of INR1 crore – 10 crores) and approximately 43% (if net
income exceeds INR 10 crores). While residents are taxed on their worldwide income, non-residents are only taxed
on income arising to them from sources in India. A company is said to be resident in India if it is incorporated
in India or has its POEM in India. Minimum alternate tax (“MAT”) at the rate of 15% (excluding surcharge and
education cess) is also payable on the book profits of a company, if the company’s income due to exemptions
is less than 15% of its book profits. The MAT rate was reduced from 18.5% to 15%, effective from April 1, 2019,
by virtue of the Ordinance. Importantly, the Ordinance also provides that no MAT shall be applicable in case
of companies opting to be taxed under section 115BAA / 115BAB. With respect to ‘eligible start-ups’ meeting
certain specified criteria, a 100% tax holiday for any 3 consecutive assessment years out of a block of seven
years beginning from the year in which such start up is set up has been provided for.

B. Dividends

Dividends distributed by Indian companies are subject to a dividend distribution tax (“DDT”) at the rate
of around 15% (calculated on a gross-up basis), payable by the company. However, no further Indian taxes
are payable by the shareholders on such dividend income once DDT is paid, except in certain specified
situations. Finance Bill, 2020 has proposed to abolish Dividend Distribution Tax (DDT). Accordingly, from
April 1, 2020, dividends declared by an Indian company would be subject tax in the hands of the recipient
at slab rates and subject to necessary withholding tax in the hands of the Indian payer company. Unlike
in case of DDT, the foreign recipients of the dividends should now be able to avail treaty benefits in respect
of the taxes paid on dividends. Further, the mechanism to claim foreign tax credit on the taxes paid on the
dividends would be much easier as it was in case of payment of DDT.

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This is because DDT was tax paid by the distribution company and not the recipient and there needed
to be necessary language in the laws of the relevant foreign jurisdiction / applicable treaty on availment
of underlying tax credits for availing foreign tax credit in respect of DDT paid in India.

C. Interest, Royalties and Fees for Technical Services

Interest payable to non-residents on loans taken/debt securities issued in foreign currency is taxable at
a beneficial rate of TDS at 5%. However, this benefit has a sunset clause stating that the benefits would only
be available for loan agreements entered into/ bonds issued on or after July 1, 2012 and before July 1, 2020.
The said beneficial 5% rate of TDS is also available in relation to Rupee Denominated Bonds (“RDB”) issued
until July 1, 2020. Similarly, interest payable to foreign institutional investors (“FII”) on investments made
by them in RDBs and government securities is taxable at the rate of 5%. This benefit also has a sunset period
and is applicable only in respect of interest payable until July 1, 2020.

In all cases above, the Finance Act, 2020 has extended the end of the sunset period, wherever applicable, from
July 1, 2020 to July 1, 2023.

Additionally, as regards interest payments made by an Indian company to its associated enterprises/related
party, the Thin Capitalization Rules would apply, as per which, interest payments exceeding 30% of the
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of the payer of interest shall
not be deductible as an expense.

The withholding tax on royalties and fees for technical services earned by a non-resident is 10%. These rates
are subject to available relief under an applicable tax treaty. In this context, it is important to note that
the definition of royalties and fees for technical services under Indian domestic law is much wider than the
definition under most tax treaties signed by India.

D. Capital Gains

Tax on capital gains depends on the period of holding of a capital asset. Short term gains may arise if the asset
is held for a period lesser than three years. Long term gains may arise if the asset is held for a period more than
three years. Gains from listed shares which are held for a period of more than twelve months are categorized
as long term.

Unlisted shares and immovable property (being land or buildings or both) are treated as long term only when
held for more than twenty-four months.

Long term capital gains earned by a non-resident on sale of unlisted securities may be taxed at the rate of 10%
(provided no benefit of indexation has been availed) or 20% (if the benefit of indexation has been availed)
depending on certain considerations. Long term gains on sale of listed securities on a stock exchange used
to be exempted and only subject to a securities transaction tax (“STT”). However, the Finance Act, 2018
removed this exemption and introduced a levy of 10% tax on LTCG arising from the transfer of listed equity
shares, units of an equity oriented mutual fund, or units of a business trust where such gains exceed INR
100,000 (approx. USD 1500). This tax is applicable on LTCG arising on or after April 1, 2018 and no indexation
benefits can be availed of. However, the Finance Act 2018 also introduced limited grandfathering in respect
of protecting the gains realized on a mark to market basis up to January 31, 2018 and only an increase in share
value post this date would be brought within the tax net.

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Further, earlier, for the purposes of obtaining the LTCG exemption, the Finance Act, 2017 had introduced
an additional requirement for STT to be paid at the time of acquisition of listed shares. However, the CBDT
had exempted certain modes of acquisition from this requirement. Pursuant to withdrawal of the exemption
in Finance Act, 2018, the CBDT issued a notification specifying that the requirement to pay STT at the time
of acquisition will not apply to

i) share acquisitions undertaken prior to October 1, 2004,

ii) share acquisitions undertaken on or after October 1, 2004 which are not chargeable to STT subject to
certain exceptions for the purposes of obtaining the capital gains tax rate of 10% under section 112A.
Short term capital gains arising out of sale of listed shares on the stock exchange are taxed at the rate of
15%, while such gains arising to a non- resident from sale of unlisted shares is 40%.

E. Withholding Taxes

Tax would have to be withheld at the applicable rate on all payments made to a non-resident, which are taxable
in India. The obligation to withhold tax applies to both residents and non-residents. Withholding tax
obligations may also arise with respect to specific payments made to residents and the failure to withhold
tax could result in tax, interest and penal consequences.

II. Incentives Under The ITA

The Government of India has taken various policy initiatives in order to strengthen scientific research and
development in various sectors, including the pharmaceutical sector. The term “scientific research” has been
defined in the ITA to include activities for the extension of knowledge in the fields of natural or applied
science. Scientific research can be carried out either in-house or by contributing to outside agencies engaged
in scientific research.

Typically, in the pharmaceutical industry, fiscal incentives are awarded to research and development units
towards the development of new drug molecules, clinical research, new drug delivery systems, new research
and development setups and infrastructure provision.

A. In-house Research and Development

Companies that have incurred any expenditure on scientific research (not being expenditure in the nature
of cost of any land or building) or in-house research and development facility as approved by the Department
of Scientific and Industrial Research, are allowed a deduction of 100 percent of such expenditure. Expenditure
on scientific research includes expenditure incurred on drug trials. Obtaining approval from any regulatory
authority under any Central, State or Provincial Act and filing an application for a patent under the Patents
Act, 1970.

B. Contributions Made to other Institutions for Scientific Research

The ITA provides for a deduction of 100 percent of sums paid to any scientific research association (having
as its object the undertaking of scientific research), or to any university, college or other institution, for the
purpose of scientific research approved by the concerned authority.

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C. Capital Expenditure

Under Section 35(1)(iv) read with Section 35(2) of the ITA, the whole of any expenditure on scientific research
(other than expenditure on acquisition of any land) being capital in nature, incurred after 31 March 1967
is allowed as a deduction. Further, under Explanation 1 to Section 35(2) of the ITA, the aggregate capital
expenditure on scientific research incurred three years immediately prior to the commencement of business
is allowed as a deduction in the year in which the business is commenced.

D. Incentive Provided to Venture Capital Funds Investing in the Pharmaceutical Sector

In order to provide an impetus to venture capital investment in the pharmaceutical sector, the ITA has granted
certain tax benefits to venture capital funds registered with the Securities and Exchange Board of India (SEBI)
that invest into certain pharmaceutical businesses. Under section 10(23FB) of the ITA, income of a venture
capital fund which arises as a result of investments into companies engaged in, inter alia, “bio-technology” and
“research and development of new chemical entities in the pharmaceuticals sector”, is exempt from tax and such
income is taxable only in the hands of the investors of the venture capital fund at the time of distribution
of the income.

III. Potential Permanent Establishment Issues in Contract Research and

Manufacturing

When a foreign enterprise proposes to outsource research and manufacturing functions to an Indian CRO /
CMO, the outsourcing arrangement would have to be carefully structured in order to mitigate the risk of the
Indian CRO/CMO being regarded as the Permanent Establishment (“PE”) of the foreign enterprise. The risk
is significantly greater where significant manufacturing functions are outsourced by the foreign enterprise
to an Indian CMO. The issue of creation of an Indian PE to the foreign enterprise is a significant one given
that; if such PE is created, the business income (attributable to the PE) of the foreign enterprise, which may
otherwise not be taxed in India, would be subjected to taxation at the rate of 40%.

Under the ITA, business income of a non-resident is taxable in India (at the rate of 40%) if it accrues or arises,
directly or indirectly, through or from any ‘business connection’ in India. Similarly, under the Indian Tax
Treaties, typically, the business income of a non-resident is taxable only to the extent that it is attributable to
a Permanent Establishment (“PE”) of such non-resident in India. The concept of PE under typical Indian Tax
Treaties is expressed as an exhaustive list of factors, as opposed to the “business connection” rule contained
in the ITA, which has no exhaustive definition in the ITA and which has been afforded a wide interpretation
by Indian courts in the past. Therefore, there may be situations where a non-resident is considered to have
a business connection in India, but no PE. As mentioned earlier, since it is open for the non-resident taxpayer
to choose to be treated under the more beneficial regime, a non-resident may rely on the PE rule under the
applicable Indian Tax Treaty rather than the business connection rule in the ITA.

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The term PE has been succinctly defined by the Andhra Pradesh High Court in the case of CIT v. Visakhapatnam
Port Trust 1, as follows:

“In our opinion, the words permanent establishment postulate the existence of a substantial element of an enduring
or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business
in that country. it should be of such a nature that it would amount to a virtual projection of the foreign enterprise of
one country into the soil of another country.”

The Indian Tax Treaties typically lay down certain criteria to determine whether a foreign enterprise earning
business income from India would be construed to have a PE in India. Some of these tests are discussed below,
especially in the context of contract research and manufacturing.

i. Fixed place of business PE: A foreign enterprise is deemed to have a PE in India if the business of foreign
enterprise is, wholly or partly, carried on through a fixed place of business in India. The principle of
fixed place of business PE is particularly relevant in the context of contract research and manufacturing.
As demonstrated below, unless such arrangements are structured carefully, there may be circumstances
which may lead to the inference that the business of the foreign enterprise, which outsources the
research and manufacturing functions to an Indian CRO / CMO, is being carried on through a fixed
place of business in India.

In a typical contract research and manufacturing model, it is common for the foreign enterprise
to frequently send personnel to the offices of the Indian CRO / CMO to provide training services. Often,
the foreign enterprise also sends its personnel to the offices of the Indian CRO / CMO to supervise and
inspect the activities carried on by the Indian CRO /CMO, in order to ensure that such activities adhere
to the prescribed standards. In both these instances, if these personnel, being employees of the foreign
enterprise, have some premises (often even a desk or an office is regarded as premises) allotted to them
for a reasonably long period of time within the Indian CRO / CMO, such premises, though not owned
or rented by the foreign enterprise, is likely to be considered to be a “fixed place of the foreign enterprise”.
In such a scenario, it may be claimed by the Indian tax authorities that the foreign enterprise is carrying
on its business through a fixed place and hence a PE of the foreign entity exists in India. Therefore,
in any arrangement to outsource research and manufacturing to an Indian CRO / CMO, it is critical to
ensure that the outsourcing arrangement is structured in manner that mitigates the risk of the foreign
entity having a PE in India.

ii. Service PE: Further, under some Indian Tax Treaties, a foreign enterprise may be considered to have a PE
in India due to the presence of its personnel in India, who render services beyond a specified time period
or to a related enterprise. For instance, under the India-US tax treaty, a PE is said to be constituted where
there is:

“(l) the furnishing of services, other than included services as defined in article 12 (royalties and fees for
included services), within a Contracting State by an enterprise through employees or other personnel,
but only if:

1 1983 144 ITR 146 AP.

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a. activities of that nature continue within that State for a period or periods aggregating to more than
90 days within any twelve-month period; or

b. the services are performed within that State for a related enterprise (within the meaning of paragraph 1
of article 9 (associated enterprises).”

In the example discussed earlier, if the training and inspection personnel sent by the foreign enterprise
to the offices of the Indian CRO / CMO are deemed to be “furnishing services” beyond the prescribed
limit of 90 days, it is likely that the tax authorities may argue that the presence of such personnel
constitutes a PE of the foreign enterprise in India.

c. Agency PE: Indian Tax Treaties typically contain a provision whereby an Indian entity may be treated
as a PE of a foreign enterprise if the Indian entity, acting on behalf of the foreign enterprise, has and
habitually exercises an authority to conclude contracts on behalf of the foreign enterprise / plays
a principal role in conclusion of the contracts 2 . Moreover, some Indian Tax Treaties, such as the
India-US tax treaty, also contain an additional provision whereby an Indian entity may be regarded
as a PE of the foreign enterprise, if the Indian entity maintains a stock of goods from which it
regularly delivers such goods on behalf of the foreign enterprise and contributes to the sale of such
goods. An agent of independent nature is considered as an exception to the Agency PE rule.

In the context of contract manufacturing, it may be contemplated in the arrangement that the Indian CMO
would maintain and deliver the final pharmaceutical product on behalf of the foreign enterprise. In such cases,
if the contract is not structured cautiously, the Indian CMO may be regarded as a PE of the foreign enterprise
under the Agency PE clause in the applicable Indian Tax Treaty. The Indian CRO / CMO may also run the risk
of being regarded as the PE of the foreign enterprise where the Indian entity, acting on behalf of the foreign
enterprise, has and habitually exercises an authority to conclude contracts on behalf of the foreign enterprise.
Although such rights are not ordinarily granted by the foreign enterprise to the Indian CRO/CMO, care should
be taken to ensure that the Indian CRO / CMO does not have the right to even represent the foreign entity
in any negotiations since, in the past, the exercise of such right has been held to constitute a PE of the foreign
entity in India.

In cases of outsourcing by a foreign enterprise to its Indian subsidiary, a question arises as to whether there
is added PE risk for the foreign enterprise as a result of the parent subsidiary relationship of the two entities.

The answer to this lies in the Indian Tax Treaties itself. The principle which is embodied in typical Indian Tax
Treaties is that the existence of a subsidiary company does not, by itself, constitute that subsidiary company
a PE of its parent company. This follows from the principle that, for the purpose of taxation, such a subsidiary
company constitutes an independent legal entity. Thus, where a foreign enterprise outsources its research and
manufacturing functions to an Indian CRO / CMO, the fact that the Indian CRO / CMO is the subsidiary of the
foreign enterprise, should not, by itself, constitute that Indian CRO / CMO to be a PE of the foreign enterprise.

As is clear from the discussion above, the issue as to whether any activity of a foreign entity in India results
in a PE of that foreign entity in India depends on the facts and circumstances of each case. In the context of
contract research and manufacturing, the answer lies in the manner in which the outsourcing arrangement
is structured and the activity of the Indian CRO / CMO is managed and operated.

2 This is as per the BEPS MLI – which is discussed below.

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IV. Issue of Taxation as an Association of Persons

Depending on the manner in which it is structured, a contract research and manufacturing arrangement could
run the risk of being taxed under the ITA as a separate taxable unit called an association of person (“AOP”). This
is a significant issue for the foreign enterprise which outsources these functions, given that, if such arrangement
is treated as an AOP, the profits of the foreign enterprise attributable to such AOP, which otherwise would not
have been subjected to tax in India (in the absence of a PE of the foreign enterprise in India), would be taxable at
the maximum marginal rate of 40%.

Although there is no definition of AOP under the ITA, there have been a number of cases in which this issue
has been discussed. In the case of Commissioner of Income Tax v. Indira Balkrishna 3, the Supreme Court has
explained the concept of AOP as “an association of persons must be one in which two or more persons join in
a common purpose or a common action, and as the words occur in a section which imposes a tax on income,
the association must be one the object of which is to produce income, profits or gains.”

Further, in the case of Deccan Wine and General Stores 4, the Andhra Pradesh High Court further examined
this concept and observed that “it is, therefore, clear that an association of persons does not mean any and
every combination of persons. It is only when they associate themselves in an income-producing activity that
they become an association of persons. They must combine to engage in such activity; the engagement must
be pursuant to the combined will of the persons constituting the association; there must be a meeting of the
minds, so to speak. In a nutshell, there must be a common design to produce income. If there is no common
design, there is no association. Common interest is not enough. Production of income is not enough.”

Although there is lack of clarity in the Indian law on the concept of an AOP, broadly the essential conditions
for constituting an AOP may be said to be:

§ Two or more persons

§ Voluntary Combinations

§ A common purpose or common action with object to produce profit or gains.

§ Combination in Joint Enterprise

§ Some kind of scheme for common management.

The risk of a contract research and manufacturing arrangement being regarded as an AOP is particularly greater
in cases where the Indian CRO / CMO co-develops the drug with its foreign partner based on a revenue sharing
model. Such special arrangements, if not structured appropriately, could lend weight to the characterization of the
arrangement as an AOP, namely, two persons joining in a common purpose or a common action the object of
which is to produce income, profits or gains. Thus, in order to avoid such characterization, it becomes important
to clearly demonstrate in the contract that the intention is not to carry out any business in common and that the
Indian CRO / CMO will only execute a part of the job (i.e. research and manufacturing) according to its technical
skill and capability. To the extent possible, the contract should convey that the work and income arising from the
foreign enterprise’s contribution is quite distinct and independent of the Indian CRO / CMO’s work and income.
Hence, it must be ensured that the arrangement is structured in a manner so as to mitigate any risk of it being
regarded as a single assessable unit and liable to tax as an AOP.

3 [1960] 39 ITR 546 (SC).

4 [1977] 106 ITR 111 (AP).

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V. Structuring Investment into India – Use of Intermediate Jurisdictions

Foreign entities that are looking at incorporating subsidiaries in India for outsourcing research and manu-
facturing functions can achieve tax efficiency by use of a tax neutral intermediate jurisdiction which has
signed an Indian Tax Treaty (“Treaty Jurisdiction”) rather than directly investing into the Indian company.

The foreign entity can achieve tax efficiency by incorporating a company (or any other entity which is eligible
to benefits of the relevant Indian Tax Treaty) in the Treaty Jurisdiction which would, in turn, invest into the
underlying Indian company.

The choice of an appropriate Treaty Jurisdiction, apart from tax neutrality and a good treaty network, would
depend on factors such as political stability, ease of administration, availability of reliable administrators,
favorable exchange controls and legal system, certainty in tax and legal framework and ease of winding up
operations.

In the aftermath of the 2008 financial crisis, the Organization for Economic Co-operation and Development
(‘OECD’) along with the G20 had launched the Base Erosion and Profit Shifting (‘BEPS’) project. The primary
aim of the BEPS project was to align taxation of income with economic activities that generate them.

As part of the BEPS project, in 2013 the OECD Committee on Fiscal Affairs (‘OECD CFA’) released the BEPS
Action Plans to counter base erosion and profit shifting, i.e. ‘tax planning strategies that exploit gaps and
mismatches in tax rules to artificially shift profits to low or no tax jurisdictions where there is little
or no economic activity, resulting in little or no overall corporate tax being paid’. 5

BEPS Action Plan 15 envisaged the development of a multilateral instrument to provide for an effective, swift
and innovative approach to implement the BEPS Action Plans. In line with the same, the OECD CFA constituted
an ad hoc group which drew up the coveted Multilateral Convention to Implement Tax Treaty Related Measures
to Prevent Base Erosion and Profit Shifting (‘MLI’). Upon coming into effect, the MLI will not replace the existing
treaty provisions; instead it will supplement, complement or modify the existing treaty provisions to bring them
in line with recommendations in the BEPS Action Plans.

VI. Indian Transfer Pricing Issues in Contract Research and Manufacturing

Services

Where entities are looking to outsource research and manufacturing functions to an associated enterprise,
such as in cases of captive outsourcing, the fees payable to the service provider should take into account
transfer pricing issues.

In India, transfer pricing regulations (“TP Regulations”) were introduced on April 1, 2001. The Indian Income
Tax Act, 1961 lays down provisions that deal with the computation of income arising from “international
transactions” between “associated enterprises”. The basic rule enshrined in the TP Regulations is that any
income arising from an “international transaction” shall be computed having regard to the arm’s length price
(discussed below). The TP Regulations define “associated enterprise” to include any enterprise that participates
directly or indirectly or through one or more intermediaries in the management or control or capital of another
enterprise.

5 OECD (2013), Action Plan on Base Erosion and Profit Shifting, OECD Publishing: http://dx.doi.org/10.1787/9789264202719-en.

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Enterprises may also be regarded as “associated” as a result of circumstances such as interdependence by

virtue of borrowings, guarantees, licensing of trademarks, purchase, sales or where enterprises have “mutual
interest” as may be prescribed by the revenue authorities. Here, “enterprise” is defined broadly and covers any
entity (including a permanent establishment) which is or proposes to be engaged in any activity relating
to the provision of goods / services of any kind, investment activity, dealing in securities and extending loans.
The term “international transaction” has been defined as a transaction between two or more associated
enterprises, either or both of which are non-residents. As mentioned earlier, the basic principle is that any
income arising from such an “international transaction” shall be computed having regard to the “arm’s
length price”.

The Finance Act, 2017 introduced the concept of secondary adjustment under the transfer pricing regulations
through introduction of Section 92CE which requires a resident taxpayer who has entered into an international
transaction to make a secondary adjustment in the event that a primary adjustment as per transfer pricing
provisions:

a. has been made suo moto by the taxpayer in his income tax return,

b. has been made by the Assessing Officer and accepted by the taxpayer,

c. has been determined by and advanced pricing agreement,

d. is made as per safe harbor rules under the ITA,

e. is a result of mutual agreement procedure (“MAP”) under a tax treaty

The provisions further prescribe that where, as a result of primary adjustment, there is an increase in the
taxpayer’s total income or a reduction in allowable loss, a secondary adjustment shall have to be made.
The secondary adjustment is intended to reflect the actual allocation of profits between the taxpayer and the
associated enterprise. The purpose of such secondary adjustment is also to eliminate the imbalance between
the taxpayer’s accounts and actual profits. The Section prescribes that the excess money (difference between
the arm’s length price determined in the primary adjustment and the actual consideration price) shall be
deemed to be an advance made by the taxpayer to its associated enterprise, if it is not repatriated to India within
a prescribed time. Once deemed to be an advance, interest shall also be payable on the excess income until the
obligation to repatriate such amount is discharged. While the rate of interest is to be calculated in a manner
prescribed by the government, it should also be determined at an arm’s length price.

However, Section 92CE does not apply where the amount of primary adjustment made in any previous
year does not exceed INR 10 million (approx. USD 150,000) and is made in respect of an assessment year
commencing on or before the April 1, 2016.

Although secondary adjustments are an internationally accepted principle and are in line with OECD’s Transfer
Pricing Guidelines, the implementation of Section 92CE may result in various practical difficulties. For example,
the foreign country in which the associated enterprise is located may have exchange control provisions that
make it difficult to repatriate the excess money to India, or it may have adjusted the transaction as per its own
transfer pricing provisions and already taxed a portion of the funds Indian tax authorities consider as excess
income. The introduction of these provisions and also those relating to thin capitalization show the increasing
tendencies of the government to look at international practices in molding tax legislation in India.

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Under the transfer pricing regime, arm’s length price is the price which is applied or proposed to be applied
in a transaction between persons other than associated enterprises, in uncontrolled conditions. The OECD
Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, 2010 (“Guidelines”)
provide that the application of the arm’s length principle is generally based on a comparison of all the
relevant conditions in a controlled transaction with the conditions in an uncontrolled transaction. Under
the Guidelines, comparability is achieved when there are no differences in the conditions that could materially
affect the price or when reasonably accurate adjustments can be made to eliminate the effects of any such
differences. The analysis of the controlled transactions with uncontrolled transactions is the very basis
of ascertaining whether the controlled transactions adhere to the arm’s length standard.

The arm’s length price in relation to an international transaction is to be determined by any of the following
methods depending on which is the most appropriate given the business of the enterprises:

§ Comparable uncontrolled price method;

§ Resale price method;

§ Cost plus method;

§ Profit split method;

§ Transactional net margin method;

A challenge faced by Indian pharmaceutical companies with respect to transfer pricing, is that the TP Regulations
do not specifically deal with intangibles or provide a basis of computing the arm’s length price, while dealing with
the same. As opposed to transactions involving tangibles, where a pricing situation in controlled transaction
can be compared with that of an uncontrolled transaction (provided all other conditions are similar or identical),
in case of intangibles/intellectual property it is very difficult to identify comparable given the unique nature
of the intellectual property involved. Hence, it becomes difficult to find a comparable based on which the
arm’s length price may be ascertained.

It is important to note that TP Regulations also require persons entering into international transactions to
maintain prescribed documents and information, and to obtain and furnish to the revenue authorities an
accountant’s report containing prescribed details regarding the international transactions. Stringent penalties
have been prescribed for non-compliance with the procedural requirements and for understatement of profits.
The pharmaceutical industry in India has time and again faced issues with respect to arriving at a comparable
arm’s length price for the purpose of transfer pricing. The industry faced a significant setback earlier this year,
when the Mumbai Income Tax Appellate Tribunal (“Tax Tribunal”), hearing an appeal by Serdia Pharma-
ceuticals India Private Limited (“Serdia”) [Serdia Pharmaceuticals (India) Private Limited v. ACIT, ITA Nos:
2469/ Mum/07 and 2531/ Mum/ 08, held that the arm’s length price for importing active pharmaceutical
ingredients (“API”) from related enterprises should be determined on the basis of price at which locally
manufactured generic APIs are sold in the domestic market. Serdia, a pharmaceutical company, imported
API from its related entities in France and Egypt for the purpose of manufacturing certain drugs. In order to
arrive at the correct arm’s length price of the API which was imported into India, the tax payer had adopted
‘Transactional Net Margin Method’ (“TNMM”). However, the Income Tax Department contended that the
APIs purchased were at prices that were higher than that paid for similar APIs by other companies in India
and that the Comparable Uncontrolled Price (“CUP”) was the most appropriate method to be adopted.
On the basis of domestically available data, the tax department claimed that the arm’s length price for the
API should have been significantly lesser than that at which Serdia had imported these API.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Tax Regime

The Tax Tribunal ruled in favour of the tax department and held that the tax department was justified
in applying the CUP Method without specifying the reasons for rejection of the TNMM method.

The Tax Tribunal did not accept Serdia’s justification of the high import price, namely, that the APIs were
manufactured on equipment standards set by the World Health Organisation, the British Good Manufacturing
Practices (GMP) and as per HSE or health, safety and environment standards. The Tax Tribunal observed that
the high-quality standards employed in manufacturing process conferred merely a certain degree of comfort
pertaining to the minimum level of impurities and this did not necessarily affect its comparability with the
same API manufactured by generic drug companies.

The Tax Tribunal’s ruling in the Serdia case has adversely impacted pharmaceutical multinationals that are
doing business in India. It has been seen that, post the Serdia ruling, the income tax department has been
aggressively pursuing multinational pharmaceutical companies which are procuring APIs from their
respective parent companies.

Another challenge faced by Indian pharmaceutical companies with respect to transfer pricing is that the
TP Regulations do not specifically deal with intangibles or provide a basis of computing the arm’s length price,
while dealing with the same. As opposed to transactions involving tangibles, where a pricing situation in
controlled transaction can be compared with that of an uncontrolled transaction (provided all other conditions
are similar or identical), in case of intangibles/intellectual property it is very difficult to identify comparable
given the unique nature of the intellectual property involved. Hence, it becomes difficult to find a comparable
based on which the arm’s length price may be ascertained.

The Indian contract research and manufacturing industry too has had its fair share of problems with the tax
department as far as transfer pricing is concerned. This is once again attributable to the lack of comparable
data for arriving at an appropriate arm’s length price. The databases that provide comparable information are
lacking in so far as they fail to provide information relating to companies engaged in pure contract research
activities.

Typically, the information offered by these databases relate to companies that work on different models, such
as, co-development of a drug by the Indian CMO in partnership with its foreign associate based on a revenue
sharing arrangement. Hence, it becomes extremely difficult for Indian CROs / CMOs to arrive at a suitable
arm’s length price. As a result, the Indian tax department has time and again created issues for Indian CRO /
CMOs by insisting on a significantly higher mark-up.

It is important to note that TP Regulations also require persons entering into international transactions
to maintain prescribed documents and information, and to obtain and furnish to the revenue authorities an
accountant’s report containing prescribed details regarding the international transactions. Stringent penalties
have been prescribed for non-compliance with the procedural requirements and for understatement of profits.

Safe Harbor Rules

To address litigation and uncertainty concerns raised by the industry and professionals, the Central Board of
Direct Taxes has notified certain transfer pricing safe harbors. Under this regime, tax authorities will accept the
transfer price set by the taxpayer if the taxpayer and transaction meet eligibility criteria specified in the rules.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Tax Regime

VII. Disallowance of Deduction of Expenses Incurred in Unethical Promotion

The MCI Code prohibits medical practitioners from taking any Gift, Travel facility, Hospitality, Cash
or monetary grant from the pharmaceutical and allied health sector Industries. The Central Board of Direct
Taxes has issued instructions to the revenue department that the claim of any expense incurred in providing
above mentioned or similar freebees in violation of the provisions of the MCI Code shall be inadmissible
as expense because it is an expense prohibited by the law.

B. Indirect Taxes

I. Goods and Services Tax

Goods and Services Tax (“GST”) system is an indirect tax regime, introduced in India by the Constitution
(101st Amendment) Act, 2016. The GST has, inter-alia subsumed the following taxes:-

i. Service Tax

ii. Additional Customs Duty commonly known as Countervailing Duty (CVD)

iii. Special Additional Duty of Customs (SAD)

iv. Central Sales Tax

v. Value Added Tax

The Central GST and the State GST are levied simultaneously on every transaction of supply of goods and
services except on exempted goods and services, goods which are outside the purview of GST and the
transactions which are below the prescribed threshold limits.

The Additional Duty of Excise or CVD and the Special Additional Duty or SAD earlier being levied on imports
have been subsumed under GST. As per explanation to clause (1) of article 269A of the Constitution, Integrated
GST (“IGST”) will be levied on all imports into the territory of India.

II. Customs Duty

Customs duties are levied whenever there is trafficking of goods through an Indian customs barrier i.e. levied
both for the export and import of goods. Export duties are competitively fixed so as to give an advantage to the
exporters.

Consequently, a large share of customs revenue is contributed by import duty. Customs duty primarily has
a ‘Basic Customs Duty’ which has not been subsumed by the GST for all goods imported into India and the rates
of duty for classes of goods are mentioned in the Customs Tariff Act, 1975 the (“Tariff Act”), which is based on
the internationally accepted Harmonized System of Nomenclature (“HSN”). The general rules of interpretation
with respect to tariff are mentioned in the Tariff Act. The rates are applied to the transaction value of goods
(for transactions between unrelated parties) as provided under the Customs Act, 1962 the (“Customs Act”)
or by notification in the official gazette.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Tax Regime

Further, the Central Government, if satisfied that circumstances exist which render it necessary to take
immediate action to provide for the protection of the interests of any industry, from a sudden upsurge in the
import of goods of a particular class or classes, may provide for a Safeguard Duty. Safeguard Duty is levied
on such goods as a temporary measure and the intention for the same is protection of a particular industry
from the sudden rise in import.

Under Section 9A of the Tariff Act, the Central Government can impose an Anti-dumping Duty on imported
articles, if it is exported to India at a value less than the normal value of that article, in other jurisdictions.
Such duty is not to exceed the margin of dumping with respect to that article. The law in India with respect
to anti-dumping is based on the ‘Agreement on Anti-Dumping’ pursuant to Article VI of the General Agree-
ment on Tariffs and Trade, 1994.

A very important change is that earlier, anti-dumping and safeguard duties did not form part of the value for
levy of CVD, whereas anti-dumping and safeguard duties, besides assessable value and basic customs duty,
will be included in the value for the purpose of levy of IGST.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Key Issues and Challenges in Indian Pharma

Industry

A. Promotion and advertisement

Pharma companies are finding it increasingly difficult to engage physicians and patients in an information—
intensive day and age. It is not possible under Indian laws for an Indian pharmaceutical company to pay
for a physician’s travel and accommodation in order to enable him to attend an educational event. It is also
not possible under Indian laws to advertise prescription medicines or any medicines with claims that may
induce a person to think that certain diseases and conditions could be treated or cured.

B. Price Control

India’s drug price control regime is erratic in its implementation. The drugs whose prices are decided by the
government are identified in the national list of essential medicines. The industry has no representation in
deciding which medicines may be decided as essential and included in the list. The result is that the industry
is always anxious prior to making sizeable investments in any drug, lest it should find itself under price control.
The other aspect of India’s price control regime is that once the government decides the price using a formula,
the industry has put that into effect immediately even though it may be aggrieved with the calculation of the
price. It may be several months before the government agrees to rectify the price, but until then the industry
has potential to lose significant amount of money.

C. Labelling

For a very long time, there existed a strange dichotomy under Indian laws. Antibiotics did not require a declaration
on the label that they are prescription products and must be sold under a valid prescription. It has been rectified
now. However, a pressing consideration that still remains whether any labelling declaration that is inserted
as a condition of marketing approval is required to be carried on in perpetuity or not. The background is that
marketing approval is required for new drugs only. Thus, a generic drug does not require marketing approval.
This results in a situation where the innovator drug carries a certain labelling declaration as part of the
marketing approval, but the generic drug does not do it because it was not subject to marketing approval.
So, the same drug exists in the market with different labelling declarations such as; whether or not the drug
is to be sold under a prescription.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

D. Environmental Diligence

Pharmaceutical manufacturing units in India have been accorded the highest rating in terms of the risk that
they may pose to the environment, especially through contamination of groundwater sources. Therefore, to
start and operate a pharmaceutical manufacturing unit, the following minimum consents and authorizations
are required to be obtained from the Central or State-level Pollution Control Boards:

§ Environmental Clearance after Environmental Impact Assessment.

§ Consent to Establish and Operate under Water (Prevention and Control of Pollution) Act, 1974 and the Air
(Prevention and Control of Pollution) Act, 1988.

§ Authorization for generation and management of hazardous waste.

The fine print of the authorizations is important to be reviewed prior to making an investment into a pharma-
ceutical manufacturing company. Sometimes, there are limitations on the ability to manufacture a certain
quantity of pharmaceuticals in the year or a certain type of pharmaceuticals in a year. Sometimes, there
is a requirement to install expensive capital equipment for processing waste at the manufacturing premise
as a precondition to start manufacture. Non-compliance with these requirements may result in suspension
or permanent cancellation of the authorization, resulting in the closure of the manufacturing premise.

E. GMP Related Non-Compliances and Safety Concerns

In light of the rising cases of substandard quality of drugs being detected by drug regulators, it becomes
increasingly important for the pharmaceutical companies to comply with the revised GMP standards which
are in consonance with the WHO-GMP standards.

Many a times, GMP inspectors from the US or EU upon inspection of manufacturing premises, find that
Indian manufacturing facility that is approved to manufacture drugs that may be sold in their jurisdiction
are in deviation of compliance with the WHO-GMP standards. This results in the issuance of a memo for
explanation and/ or ban on import until the issue with GMP compliance is rectified.

F. Fixed Dose combinations

Since 1988, Indian law requires that any combination of drugs must be approved by the DCGI before they could
be marketed in India. However, since the power to license the manufacturing of drugs is with the State-level
Licensing Authority, and there is no requirement to submit proof of approval from the DCGI to the licensing
authority at the time of making an application for manufacturing license.There resulted a situation where
a large number of fixed-dose combination drugs were licensed in India, without any approval from the DCGI.

However, since September 2018, after months of protracted legal proceedings, the Government has been able
to ban all drugs that were sold without approval or which did not have therapeutic justification for sale.

All manufacturers of FDCs in India must ensure that their FDC has been approved by the DCGI before
manufacturing it.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

G. Overlap with other Industries such as Bio-Pharma and Med-Tech

With advancement of technology, new products that do not necessarily have a chemical basis can be used
to treat human and animal diseases and conditions. In that sense, these products, though cannot be called
pharmaceuticals, can still be called drugs. In India, the legislative Act that regulates drugs i.e. DCA was
enacted in 1940 and the operational Rules under the DCA i.e. DCR were framed in 1945, when drugs were
primarily made from chemicals. Hence, unfortunately, the law has not been able to keep up with the
technology.

An immediate consequence of the out-of-date nature of Indian regulatory framework is that new technologies
such as bio-pharma and med-tech products used for treating humans and animals now have to satisfy the
same quality and efficacy (or efficiency) thresholds as a pharmaceutical drug. This results in difficulty in
obtaining marketing approval for such drugs in India.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Conclusion

The Indian Pharmaceutical Industry has shown great potential and continues to grow consistently. The
industry is experiencing growing inclination towards research and development and innovation and is likely
to encourage domestic manufacturing of drugs. The move towards domestic manufacturing is also supported
by the Make in India initiative adopted by the government to encourage local value addition for products in
the country.

India now appears to be a go to destination for foreign companies looking to outsource their manufacturing.
The drugs regulator is taking active steps in harmonizing drug manufacturing standards with global standards
to ensure quality of drugs is maintained, given that the Indian generic drug sector is robust and is establishing
its presence in foreign markets as well. The new-drug sector is also expected to record a healthy growth owing
to a significant industry-wise increase in R&D expenditure and proposed new drug launches. However, since
health is an important subject, the industry continues to be heavily regulated. Multiple Ministries continue to
regulate the pharmaceutical industry such as the Health Ministry, Chemicals and Fertilizers Ministry, Science
and Technology Ministry, Food Ministry etc. Numerous legislations, regulations and judgments affecting the
industry have come into existence recently and numerous others have been proposed. The companies who
achieve success in the Indian pharmaceutical market are certainly those which are able to navigate issues that
arise under India’s legal, regulatory and tax framework, effectively.

The upcoming year is likely to witness the adoption of a comprehensive legislation for regulation of drugs,
medical devices, cosmetics, clinical trials as well as online pharmacies. The new legislation if passed will
harmonize the regulatory landscape for the pharmaceutical industry in India.

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Annexure A

List of Drug Licenses Under DCA

Drugs and
Form Application Licensing
License Application for Cosmetics
required form Authority
Rules Act

Authority appointed
DCR and CT by the central
Import licenses – –
Rules Government under
Rule 22

Import of drugs excluding those specified

Form 10 Form 8 21 of DCR
in Schedule X

Import of drugs specified in Schedule X Form 10-A Form 8-A 21 of DCR

Import of new drug or investigational new

drug for clinical trial, bioavailability or 67 and 68 of
Form CT-17 Form CT-16
bioequivalence study or for examination, CT Rules
test or analysis

Import of drugs by a Government Hospital

or Autonomous Medical Institution for the Form 11-A Form 12-AA 33A of DCR
treatment of patient

Form CT-19
and/or Form 75 of CT
Import new drug for sale or for distribution Form CT-18
CT-20 as the Rules
case may be

Any application for import license in Form 8 or Form 8-A, as the case may be, shall be accompanied by a copy
of Registration Certificate issued in Form 41 under rule 27-A. An application for issue of a Registration
Certificate shall be made to the licensing authority in Form 40.

Authority
License to sell, stock, exhibit or offer Form Application Part IV of appointed
for sale of distribution of drugs Required Form DCR by the state
government

Form 19 or
Applications for the grant or renewal of
Form 19-A,
a license for drugs other than those in 59(2) of DCR
as the case
Schedule X
may be

Applications for the grant or renewal of a

Form 19-C 59(2) of DCR
license for drugs included in Schedule X

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Annexure A

Authority
License to sell, stock, exhibit or offer Form Application Part IV of appointed
for sale of distribution of drugs Required Form DCR by the state
government

Form 20, Form

A license for drugs other than those speci-
20-A or Form
fied in Schedule C, C (1) and X and by retail 61 of DCR
20-B, as the case
on restricted license or by wholesale.
may be

A license for drugs specified in Schedule Form 21, Form

C and C (1) excluding those specified in 21-A or Form
61(2) of DCR
Schedule X, by retail on restricted license or 21-B, as the case
by wholesale. may be

Form 20-F or
A license for drugs specified in Schedule X
Form 20-G as 61(3) of DCR
by retail or by wholesale.
the case may be

Authority
appointed
Form Application Part VII of
Manufacture for sale or distribution by the
Required Form DCR
central
government

For license to manufacture drugs other

69 of DCR
than those specified in Schedules C and C(1)

(122) in the case of repacking of drugs

excluding those specified in Schedule X for Form 25-B Form 24-B
sale or distribution

(b) in the case of manufacture of drugs

included in Schedule X and not specified in Form 25-F Form 24-F
Schedules C and C(1)

In any other case Form 25 Form 24

A license to manufacture for sale or for

distribution of drugs specified in Schedules
C and C(1) other than Large Volume Paren- Form 28 Form 27 76 of DCR
terals, Sera and Vaccines, drugs specified in
Part X-B and Schedule X

A license to manufacture for sale or for

distribution of drugs specified in Schedules
C and C(1) and Schedule X other than Large Form 28-B Form 27-B 76 of DCR
Volume Parenterals, Sera and Vaccines,
drugs specified in Part X-B

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Annexure A

Authority
appointed
Form Application Part VII of
Manufacture for sale or distribution by the
Required Form DCR
central
government

A license to manufacture for sale or for

distribution of Large Volume Parenterals,
Form 28-D Form 27-D 76 of DCR
Sera and Vaccines and recombinant DNA
derived drugs

If the person proposing to manufacture a

drugs for the purpose of examination, test
Form 29 Form 30 89 of DCR
or analysis does not hold a license in Form
25 or Form 28

Application for approval to manufacture

Form 46 and/or
new drug other than the drugs classifiable Form 44 122-B of DCR
Form 46-A
under Schedules C and C(1)

Authority
appointed
Application Part VII of
Loan Licenses Form required by the
Form DCR
central
government

For the grant or renewal of loan licenses

to manufacture for sale or for distribu-
Form 25-A Form 24-A 69-A of DCR
tion of drugs other than those specified in
Schedule C, Schedule C (1) and Schedule X

Intending to
avail the facilities
Applications for the grant or renewal of loan
as under Form Form 27-A 75-A of DCR
of drugs specified in Schedules C and C(1)
28 and Form
28-D

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Annexure A

Authority
appointed
Part V-B of
License to operate a blood bank by the
DCR
central
government

License to operate a Blood Bank for collec-

tion, storage and processing of whole
Form 28-C 122-G of DCR
human blood and/or its components for
sale and distribution

License to manufacture and store blood

Form 28-E 122-G of DCR
products for sale or distribution

Certificate of renewal of license to operate

a Blood Bank for collection, storage and
processing of whole human blood and/or Form 26-G 122-F of DCR
for preparation for sale or distribution of its
components

Certificate of renewal of license to manu-

Form 26-I 122-I of DCR
facture and store blood products

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Annexure B

Targeted Timelines for Approval of License Applications

Sr.
Type of Application Timeline in Working Days
No

1. New Drugs/Investigational New Drugs (“IND”):

IND Applications in consultation with Subject Expert Committee (“SEC”); 30

New Drug including biological/clinical trials/global clinical trials/new claims in 90

consultation with SEC;
90
Subsequent New Drugs with SEC; and
90
d. Fixed Dose Combination in consultation with SEC.

2. Import Registration of drugs and biological 270

3. Import License of drugs and biological 45

4. Import post approval changes for drugs:

a. Major changes; 180

b. Minor changes 90

5. Endorsement of additional product in registration certificate 120

6. Rule 37 and neutral code 60

7. Grant of permission for manufacturing of: 7

a. New drug or investigational new drug for clinical trial, bioavailability or
bioequivalence study or for examination, test and analysis (CT-11);
b. Formulation of unapproved active pharmaceutical ingredient for the devel-
opment of formulation for test or analysis or clinical trial or bioavailability or
bioequivalence study (CT-14); and
c. Unapproved active pharmaceutical ingredient for the development of formula-
tion for test or analysis or clinical trial or bioavailability or bioequivalence study
(CT-15)

8. CLAA in Form 28/28-D128-E/27-C 60

9. License to import new drug or IND for the purpose of clinical trial or bioavailability 7
or bioequivalence study or for examination, test or analysis (CT-17)

10. Permission to conduct bioavailability or bioequivalence study for new drug or IND 90

11. Extension of shelf life report 45

12. Registration of cosmetics 90

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 The Indian Pharmaceutical Industry — Regulatory, Legal and Tax Overview

Sr.
Type of Application Timeline in Working Days
No

13. Registration of Ethics Committee (CT-02) 45

14. Biological Post Approval Changes:

a. Major in consultation with Central Drugs Laboratory, SEC 180

b. Minor 90

15. Permission for bioavailability or bioequivalence study and its post approval 15
changes for export purpose

16. Registration of bioavailability or bioequivalence study center (CT-09) 90

17. Written confirmation as per European Union Directives 20

18. Permission to import small quantity of drugs for personal use 3

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© Nishith Desai Associates 2024 www.nishithdesai.com
About NDA

At Nishith Desai Associates, we have earned the reputation of being Asia’s most Innovative Law Firm — ​
and the go-to specialists for companies around the world, looking to conduct businesses in India and for
Indian companies considering business expansion abroad. In fact, we have conceptualized and created
a state-of-the-art Blue Sky Thinking and Research Campus, Imaginarium Aligunjan, an international
institution dedicated to designing a premeditated future with an embedded strategic foresight capability.

We are a research and strategy driven international firm with offices in Mumbai, Palo Alto (Silicon Valley),
Bengaluru, Singapore, New Delhi, Munich, and New York. Our team comprises of specialists who provide
strategic advice on legal, regulatory, and tax related matters in an integrated manner basis key insights
carefully culled from the allied industries.

As an active participant in shaping India’s regulatory environment, we at NDA, have the expertise and more
importantly — the VISION — to navigate its complexities. Our ongoing endeavors in conducting and
facilitating original research in emerging areas of law has helped us develop unparalleled proficiency to
anticipate legal obstacles, mitigate potential risks and identify new opportunities for our clients on a global
scale. Simply put, for conglomerates looking to conduct business in the subcontinent, NDA takes the uncer-
tainty out of new frontiers.

As a firm of doyens, we pride ourselves in working with select clients within select verticals on complex
matters. Our forte lies in providing innovative and strategic advice in futuristic areas of law such as those
relating to Blockchain and virtual currencies, Internet of Things (IOT), Aviation, Artificial Intelligence,
Privatization of Outer Space, Drones, Robotics, Virtual Reality, Ed-Tech, Med-Tech and Medical Devices and
Nanotechnology with our key clientele comprising of marquee Fortune 500 corporations.

The firm has been consistently ranked as one of the Most Innovative Law Firms, across the globe. In fact,
NDA has been the proud recipient of the Financial Times – RSG award 4 times in a row, (2014-2017) as the
Most Innovative Indian Law Firm.

We are a trust based, non-hierarchical, democratic organization that leverages research and knowledge to
deliver extraordinary value to our clients. Datum, our unique employer proposition has been developed
into a global case study, aptly titled ‘Management by Trust in a Democratic Enterprise,’ published by
John Wiley & Sons, USA.

© Nishith Desai Associates 2024 www.nishithdesai.com

Research@NDA

Research is the DNA of NDA. In early 1980s, our firm emerged from an extensive, and then pioneering,
research by Nishith M. Desai on the taxation of cross-border transactions. The research book written by him
provided the foundation for our international tax practice. Since then, we have relied upon research to be
the cornerstone of our practice development. Today, research is fully ingrained in the firm’s culture.

Over the years, we have produced some outstanding research papers, reports and articles. Almost on a daily
basis, we analyze and offer our perspective on latest legal developments through our “Hotlines”. These
Hotlines provide immediate awareness and quick reference, and have been eagerly received. We also provide
expanded commentary on issues through detailed articles for publication in newspapers and periodicals
for dissemination to wider audience. Our NDA Labs dissect and analyze a published, distinctive legal trans-
action using multiple lenses and offer various perspectives, including some even overlooked by the executors
of the transaction. We regularly write extensive research papers and disseminate them through our website.
Our ThinkTank discourses on Taxation of eCommerce, Arbitration, and Direct Tax Code have been widely
acknowledged.

As we continue to grow through our research-based approach, we now have established an exclusive four-
acre, state-of-the-art research center, just a 45-minute ferry ride from Mumbai but in the middle of verdant
hills of reclusive Alibaug-Raigadh district. Imaginarium AliGunjan is a platform for creative thinking; an
apolitical ecosystem that connects multi-disciplinary threads of ideas, innovation and imagination. Designed
to inspire ‘blue sky’ thinking, research, exploration and synthesis, reflections and communication, it aims
to bring in wholeness — that leads to answers to the biggest challenges of our time and beyond. It seeks to be
a bridge that connects the futuristic advancements of diverse disciplines. It offers a space, both virtually and
literally, for integration and synthesis of knowhow and innovation from various streams and serves as a dais
to internationally renowned professionals to share their expertise and experience with our associates and
select clients.

We would love to hear from you about any suggestions you may have on our research publications.
Please feel free to contact us at [email protected].

© Nishith Desai Associates 2024 [email protected]

Recent Research Papers

Extensive knowledge gained through our original research is a source of our expertise.

June 2024 June 2024 April 2024

Opportunities in GIFT City From Capital to Impact: Third-Party Funding for
Fund Formation Role of Blended Finance Dispute Resolution in India
Legal and Regulatory Framework Exploring Recent Developments
and the Legal Landscape

February 2024 December 2023 December 2023

Tracking NFTs Prevention of Sexual Harassment The Indian Defence Industry
from Code to Court at the Workplace (POSH) Redefining Frontiers
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The Indian Pharmaceutical Industry

Regulatory, Legal and Tax Overview

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