The Public Accounts Committee (PAC), in its Fifty-Third Report (Eighteenth Lok Sabha), PAC No. 2487, has reviewed the action taken by the Ministry of Finance, Department of Revenue, on the observations and recommendations contained in the Committee’s 79th Report of the Seventeenth Lok Sabha on “Improper Exemption of IGST on Import of Pharmaceutical Products.” The Action Taken Report was presented to the Lok Sabha and laid in the Rajya Sabha on 4 August 2026.
The matter originated from an Audit observation relating to the import of drugs and pharmaceutical products by two importers through the Commissionerate of Customs (ACC), Mumbai and Airport Special Cargo, Courier Cell, Mumbai during the period from 15 November 2017 to 31 March 2018. The issue concerned the availability and application of IGST exemption under Customs Notification No. 51/96-Customs dated 23 July 1996.
The Ministry informed the Committee that the assessment practices followed by the concerned Commissionerates and other field formations were subsequently examined. The examination showed that Bills of Entry had been cleared by allowing IGST exemption to eligible importers in accordance with Notification No. 51/96-Customs dated 23 July 1996, subject to fulfilment of the prescribed conditions. The Government has, therefore, stated that the relevant notification and applicable rates were correctly implemented by the field offices of the Central Board of Indirect Taxes and Customs (CBIC).
On the evolution of the exemption framework following implementation of GST, the Ministry stated that Notification No. 43/2017-Customs dated 30 June 2017 amended, among others, Notification No. 51/96-Customs by replacing the earlier reference to additional duty leviable under Section 3 of the Customs Tariff Act, 1975 with the Integrated Tax leviable under sub-section (7) of Section 3 of the Customs Tariff Act. This amendment was made in the context of the introduction of GST with effect from 1 July 2017.
For domestic inter-State supplies of specified scientific and technical instruments, apparatus, accessories and consumables, the Government had issued Notification No. 47/2017-Integrated Tax (Rate), reducing the applicable IGST rate from 28 per cent/18 per cent to 5 per cent in order to provide a level playing field to the domestic industry.
Subsequently, Notification No. 10/2018-Integrated Tax (Rate) dated 25 January 2018 was issued to address certain anomalies in nomenclature and make technical amendments. Among other changes, references relating to eligible public-funded research institutions were modified, including the specification covering public-funded research institutions, universities, IITs, the Indian Institute of Science, Bangalore and Regional Engineering Colleges, while excluding hospitals from the specified category.
The exemption from IGST available on imports of specified equipment by public-funded research institutions was later withdrawn through Customs Notification No. 42/2022-Customs dated 13 July 2022, pursuant to the recommendations of the GST Council at its 47th Meeting held in June 2022.
The PAC had earlier recommended that, considering the importance of research and development in areas such as science, technology, space and health, the Government should examine the possibility of extending exemption on imports of pharmaceutical products and research equipment to organisations undertaking serious scientific research. The Committee had also suggested considering hospitals engaged in research on life-saving medicines and treatments for such exemption.
Acting on this recommendation, the Ministry placed the issue of granting exemption to research equipment imported by public-funded research institutions, IITs and other eligible institutions before the GST Council at its 53rd Meeting held on 22 June 2024. The Fitment Committee recommended that no change be made to the prevailing tax treatment, observing that restoration of such exemption could be detrimental to domestic manufacturers and would also involve an end-use-based exemption. The GST Council accepted the recommendation of the Fitment Committee and decided to maintain the status quo.
The PAC has also focused on improving clarity and consistency in the drafting and implementation of tax notifications. It observed that repeated issuance of notifications and subsequent clarifications could lead to uncertainty at the field level. The Committee had accordingly recommended that the Tax Research Unit (TRU), CBIC, which handles rate and exemption notifications relating to GST and Customs, should supplement notifications with illustrative examples covering different possible scenarios.
The Ministry informed the Committee that Acts, Rules, Notifications, Circulars, Instructions, Guidelines and Orders relating to GST, Customs, Central Excise and Service Tax issued by CBIC are available on the CBIC Tax Information Portal and can be searched through keywords. The Committee acknowledged this facility but noted that the Ministry’s response did not specifically address its recommendation for developing a dedicated interface for quick resolution of doubts and queries of assessing officers.
The PAC has, therefore, reiterated its recommendation that TRU/CBIC develop an interface for expeditious resolution of queries arising from tax notifications and that important notifications should necessarily be accompanied by suitable exemplars or illustrations. The Committee stressed that such measures would facilitate uniform interpretation and implementation by assessing officers and reduce the possibility of confusion in the field.
The Committee also took note of the Ministry’s response concerning the furnishing of complete and updated information to Parliamentary Committees. In its earlier report, the PAC had expressed concern over the non-inclusion of Notification No. 42/2022-Customs dated 13 July 2022, which withdrew the exemption, in the background material subsequently available to the Committee. The Ministry explained that the original Audit observation related to the period from 15 November 2017 to 25 January 2018 and that Notification No. 42/2022 was prospective and did not affect the Audit observation pertaining to that period. The PAC had nevertheless emphasised the need for a more transparent and forthcoming approach in furnishing updated information.
The Action Taken Report records that the Government has accepted all four observations/recommendations contained in the PAC’s 79th Report. Of the four recommendations, none has been categorised as one which the Committee does not wish to pursue, none has been placed in the category where the Government’s reply has not been accepted, and no interim reply remains pending.
The Committee has requested the Ministry of Finance, Department of Revenue, to furnish Action Taken Notes on the observations and recommendations contained in Chapter I of the Fifty-Third Report within three months of its presentation to Parliament.
Background
The Fifty-Third Report of the Public Accounts Committee (2026-27) relates to action taken by the Government on the Committee’s 79th Report of the Seventeenth Lok Sabha concerning the “Improper Exemption of IGST on Import of Pharmaceutical Products.” The earlier report was presented to the Lok Sabha and laid in the Rajya Sabha on 18 December 2023. The PAC adopted the present Action Taken Report at its sitting held on 30 July 2026.
The Report can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/08/IMPROPER-EXEMPTION-OF-IGST-ON-IMPORT-OF-PHARMACEUTICAL-PRODUCTS.pdf
