Finance Ministry Clarifies On Procedure For Return Of Expired Drugs Under GST

Mumbai, 30 Oct 2018: The Central Board of Indirect Taxes and Customs (CBITC) under the Union finance ministry has come out with the much awaited clarification on the procedure for return of time expired drugs under the Goods and Services Tax (GST) regime thus bringing respite to pharmaceutical industry and drug traders.

The All India Organisation of Chemists and Druggists Association (AIOCD), a representative body of 8.5 lakh chemists in the country, had earlier urged the GST Council to come out with a clear policy framework on date expired, damaged and non resaleable drugs in GST. The trade body in a letter to Sushil Kumar Modi, deputy chairman, GST Council had highlighted difficulties faced in relation to expired goods of transitional stocks i.e. sold prior to June 30, 2017.

In pharmaceutical industry and trade, drugs normally have a shelf-life period of two-three years which are afterwards date expired and are returned by retailers and stockists to the manufacturers. The drugs are first returned by retailers to stockists and thereafter the stockists to manufacturers.

The CBITC in a circular on October 26, 2018 said that the retailer/wholesaler can either return the time expired goods treating it as fresh supply or can return the expired goods by issuing credit notes. 

In case of return of time expired goods to be treated as fresh supply, a registered person (other than a composition taxpayer) can return goods by issuing an invoice for the same. This will be referred to as return supply. The wholesaler or manufacturer, as the case may be, who is the recipient of such return supply, shall be eligible to avail input tax credit (ITC) of the tax levied on the said return supply as specified in Section 16 of the CGST Act. 

An unregistered person can return the time expired goods by issuing any commercial document without charging any tax on the same. A composition taxpayer can return the said goods by issuing a bill of supply and pay tax at the rate applicable to a composition taxpayer. In this scenario there will not be any availability of ITC to the recipient of return supply. 

If a manufacturer destroys the time expired goods, returned by the retailer/wholesaler, he/she is required to reverse the ITC availed on the return supply as per clause (h) of sub-section (5) of section 17 of the CGST Act. The circular clarified that the ITC which is required to be reversed in such scenario is the ITC availed on the return supply and not the ITC that is attributable to the manufacture of such time expired goods. 

Besides this, time expired goods can also be returned by issuing credit note. As per sub-section (1) of Section 34 of the CGST Act, the supplier can issue a credit note where the goods are returned back by the recipient. Thus, the manufacturer or the wholesaler who has supplied the goods to the wholesaler or retailer, as the case may be, has the option to issue a credit note in relation to the time expired goods returned by the wholesaler or retailer. 

The retailer or wholesaler can return the time expired goods by issuing a delivery challan. There is no time limit for the issuance of a credit note in the law except with regard to the adjustment of the tax liability in case of the credit notes issued prior to September following the end of the financial year and those issued after it. If a supplier (manufacturer/wholesaler) receives expired goods till September, he can issue credit note and the same needs to be uploaded by him on the common portal. Subsequently, tax liability can be adjusted by such supplier provided the recipient (wholesaler/retailer) has either not availed the ITC or if availed has reversed the ITC.

If a supplier (manufacturer/wholesaler) receives expired goods after September, he can still issue credit note, but can not upload the same on the common portal as he is not allowed to adjust tax liability by himself.