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There was a slight decline in the shares of Torrent Pharma today. Before the market closed, some news came regarding the company due to which the stock came in the red. This news was regarding GST penalty imposed on a company from Ahmedabad, Gujarat.
New DelhiThere was a decline in the stocks of Torrent Pharma on Monday, The company’s shares closed at Rs 3720,60 on NSE with a fall of 0,26 percent, The reason for the fall in shares is believed to be a news that came shortly before the market closed, Although, the recent performance of Torrent Pharma shares has not been very good, but this news today has given another blow to the company, Actually, Central GST Ahmedabad South Commissionerate has issued a penalty order of Rs 41,33 crore on the company, The allegation is that the company has wrongly claimed refund on its exports,
At first glance this amount may seem huge, but such cases keep coming up in the complex GST system of pharma exports. The special thing is that Torrent is surrounded by such investigation and notice for the third time this year, due to which questions are being raised as to what is wrong with the company’s compliance machinery. The company itself has told the stock exchange that this order was received on 26 November and it is going to appeal against this decision. He claims that this penalty will neither cause any attack on the business nor have a major impact on the financials of the company. The company has a point, as Torrent’s export portfolio is huge and margins are so high that such regulatory shocks generally do not shake the balance sheet.
Why was the penalty imposed?
GST officials allege that Torrent made a wrong claim while taking GST refund on exports. Only those cases come under Section 74 in which less tax has been deposited by mistake, or more claim has been taken. Due to inverted duty structure in pharma exports, input tax credit is high and output tax is low, due to which the refund process becomes very technical and burdensome with documents. Even a minor discrepancy in any invoice, batch number or document creates an opportunity for audit and Torrent got stuck in this trap. This is not the first case. In February, a notice of Rs 20.96 lakh was issued to the company and in October, NPPA had ordered recovery of Rs 6.63 crore on overpricing of five medicines. This time the amount is definitely bigger, but the pattern is visible that the regulatory agencies are now showing more strictness on the pharma sector than before.
Company’s response
Torrent’s official stance is absolutely calm. The company is saying that it will challenge the order and it will not have any major impact on the financials. If the appeal is accepted or a stay is granted, the impact of the penalty will be postponed for the next several months.
If we look at the company’s Q2 profit quarter of Rs 591 crore, this penalty comes to around 2 percent, which means there is no major impact on the margin. There was definitely a decline in shares today but there was not a big impact. However, on such occasions, retail investors try to exit the shares immediately, hence it is possible that this stock may fall down in the early market on Monday.
What message is the sector getting?
The impact of this case is not limited to torrents only. In the last one year, scrutiny of GST refunds in the pharma sector has increased significantly. The structure of GST on exports is so complex that even small mistakes carry the risk of penalty. The government has processed more than Rs 2.1 lakh crore refunds so far this year, and the danger is that more claims may have been given than necessary. This is the reason why even a big player like Torrent is coming under scrutiny.
