The widely known Dolo- 650 tablet makers were recently accused of malpractices by the CBDT (Central Board of Direct Taxes) of indulging in “unethical practices”. Micro Labs Ltd., the company that produces the drug, allegedly supplied freebies worth approximately Rs. 1000 Crores to doctors. The freebies comprised of gifts, travel expenditures, etc. and were given in exchange for promotion of the company’s products.
The Income Tax Department had raided 36 different production units of Micro Labs Ltd. Spread across nine states on 6th July 2022. Post the raid, several allegations were made by the CBDT against the Bengaluru based company. The Central Board of Direct Taxes also seized Rs. 1.20 crores of unaccounted for cash along with gold and diamond jewelry worth Rs. 1.40 crores. The producers of Dolo- 650 are also accused of tax evasion (estimated to be over Rs. 350 crores) apart from the accusation of committing malpractices for promotion.
Dolo-650 is a paracetamol that works as an analgesic and antipyretic tablet that is consumed orally. The drug was prescribed extensively by doctors especially during the Covid pandemic breakout to cure headaches and reduce pain and fever. The company that produces Dolo- 650 has presence in over 50 countries and it is engaged in the business of manufacturing and marketing of pharmaceutical products and Active Pharmaceutical Ingredients (API).
What is the CBDT & Why is Micro Labs. Ltd. Under trouble?
The Central Bureau of Direct Taxes, currently headed by Nitin Gupta, is a statutory body of the Income Tax Department of India. It works under the Board of Revenue Act, 1963. The CBDT performs functions such as levying and collecting taxes, devising of policies, suggesting changes in tax rates, etc.
Micro Lab’s Dolo 650 had made tons of money during COVID-19 and the pharmaceutical agency became a market leader in the pharmaceutical sector. As a result, the CBDT executed a raid on Micro Labs Ltd. in July. The IT sleuths found unaccounted for cash and valuables worth crores along with evidence hiding under documents and digital data that is now seized. The body also discovered that the company had been providing free medicines to doctors as a business promotion technique. The pharmaceutical company is now in trouble over the same.
“Various other means of tax evasion, including inadequate allocation of research and development expenses to eligible units and inflated claim of weighted deduction under section 35 (2AB), have also been detected,” the CBDT said.
Micro Labs Ltd. also haven’t acknowledged any emails sent to them inquiring about their response to the CBDT’s claims.
How did the Micro Labs Ltd. attempt to hide the traces of the freebies?
The Micro Labs Ltd. had been debiting the accounts of providing freebies to medical professionals and drug store owners under the heads “Sales and Promotion”, “Medical Advisories”, “Seminars and Symposiums”, etc.
As per the Income Tax Department, “The group is also found to have claimed artificially inflated deductions under special provisions in respect of certain incomes, by resorting to suppression of expenses and over-appropriation of revenue to the unit eligible for such deduction”.
What will the outcome of this investigation possibly be?
As per past investigations and outcomes, the amount and valuables retrieved by the Income Tax Department from a corrupt organization are seized by the Income Tax Department. The company like in the case of Micro Labs Ltd. is asked to present the accounts for the seized valuables from their records. Upon failure to do so, the department considers it as income and collects 60 percent tax along with penalty. But if the money has come through some other illegal means, then action is to be taken under other laws.
With possible outcomes like these, understanding what happens to the pharmaceutical giant Micro Labs Ltd. is like waiting for the ball to drop.
Read more: CBDT alleges Dolo-650 makers of business and tax irregularities
