Summary: The 57th GST Council Meeting held on 8 October 2026 recommended relaxation of the input tax credit restriction under Section 17(5) for goods destroyed or written off upon expiry of shelf life where such treatment is required by law. Under the existing Section 17(5)(h) of the CGST Act, ITC on goods destroyed or written off is generally restricted, even where the goods were originally acquired or manufactured for taxable business activities. The proposed amendment may provide relief to pharmaceutical manufacturers, medicine dealers, food and dairy businesses, medical-device companies, cosmetics manufacturers and regulated agricultural chemical businesses. However, eligibility will depend on the final statutory language, applicable product-specific expiry and disposal requirements, and whether the goods have been physically destroyed or permanently written off rather than merely provided for in the accounts. The treatment of expired medicines returned to manufacturers requires separate consideration under existing CBIC clarifications. For manufactured goods, determining attributable ITC may require batch-wise costing and a supportable allocation methodology, and no universal statutory calculation formula has been announced. Businesses should maintain expiry records, stock registers, destruction certificates and evidence of regulatory compliance. The recommendation does not expressly grant retrospective relief for earlier financial years. As of 20 October 2026, the proposed relaxation had not become operative, and the existing ITC restrictions continue until the relevant statutory amendment takes effect.
- Introduction
- 1. Existing Legal Position under Section 17(5)(h)
- Existing Law versus Proposed Amendment
- 2. Meaning of Goods Destroyed or Written Off on Expiry of Shelf Life
- Goods Physically Destroyed after Expiry
- Goods Permanently Written Off after Expiry
- Provision for Goods Approaching Expiry
- 3. Industries That May Benefit from the Proposed Amendment
- Table A – Industry-Wise Practical Cases
- Pharmaceutical Industry – Drugs and Cosmetics Rules, 1945
- Food Industry – FSSAI Regulations
- Agricultural Chemicals
- Medical Devices and Cosmetics
- 4. Important Distinctions for Applying the Relaxation
- 5. Treatment of Expired Medicines Returned to Manufacturer
- 6. Determination of ITC Attributable to Expired Stock
- Current-Law Caution
- Illustrative Calculation
- 7. Treatment of Earlier Financial Years
- Illustrative Historical Reversals
- 8. Final Legal Conclusion
Introduction
The 57th GST Council Meeting held on 8 October 2026 has proposed an important relaxation in the blocked-credit provisions under Section 17(5) of the CGST Act for goods destroyed or written off on expiry of shelf life where such treatment is required by law. The proposal is particularly relevant for pharmaceutical, food, dairy, medical-device, cosmetics and regulated chemical businesses dealing with products that cannot continue in saleable inventory after legally prescribed expiry. However, the proposed relief should not be treated as an automatic entitlement for every expired or slow-moving product, because the exact statutory wording, the meaning of “as required by law,” the nature of destruction or permanent write-off, treatment of returned expired goods, ITC attribution methodology and applicable product-specific regulations will remain critical in determining eligibility.
In this article, I have discussed the practical applicability, calculation methodology, documentation and reporting requirements, and key precautions relating to Input Tax Credit on goods destroyed or written off due to mandatory shelf-life expiry under the CGST Act. In case you have any doubt after reading this article, or if you feel that any practical aspect requires further discussion, you may contact me at the contact details mentioned at the end of this article.
The recommendation is particularly significant for pharmaceutical manufacturers, medicine wholesalers, food manufacturers and other businesses dealing in products whose sale or use is legally restricted after expiry.
Under the existing GST provisions, ITC on goods destroyed or written off is generally blocked. The proposed amendment seeks to remove or relax this restriction in qualifying cases involving expiry-related destruction or write-off undertaken as required by law, thereby reducing the GST cost incurred by businesses complying with mandatory shelf-life requirements.
Important: The GST Council has recommended relaxation under Section 17(5) for goods destroyed or written off on expiry of shelf life as required by law. Such goods are presently affected by Section 17(5)(h), but the exact statutory amendment and its effective date have not yet been announced. The existing restriction therefore continues to apply until the amendment becomes operative.
1. Existing Legal Position under Section 17(5)(h)
Section 17(5)(h) presently restricts ITC on goods that are lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.
Therefore, where goods reach their prescribed expiry date and are destroyed or permanently written off, the ITC consequences have to be examined under the existing restriction.
The fact that the goods were originally purchased or manufactured for making taxable sales does not, by itself, override the specific restriction.
Existing Law versus Proposed Amendment
| Situation | Existing ITC position | Proposed position |
|---|---|---|
| Medicines destroyed after legally prescribed expiry | Generally restricted under existing Section 17(5)(h), subject to facts and the nature of attributable credit | Potentially eligible where the final amendment covers the case and applicable law requires the expiry-related destruction or permanent write-off |
| Expired medicines returned to manufacturer and subsequently destroyed | Treatment depends upon the return mechanism and existing CBIC procedure | Potential relief; depends on final amendment and treatment of returned expired medicines |
| Food products destroyed following legally required expiry or disposal | Generally restricted where Section 17(5)(h) applies | Potentially eligible where the relevant product is subject to a legally applicable expiry/use-by requirement and the destruction or write-off satisfies the final statutory condition |
| Products permanently written off upon mandatory shelf-life expiry | Generally restricted | Potentially eligible, subject to final wording and proof that the write-off falls within the legally required expiry-related condition |
The expression “as required by law” is important.
The final amendment must clarify whether this qualification applies to:
- the legally prescribed shelf life;
- the requirement to destroy or write off the goods; or
- both.
Accordingly, the mere fact that a product has expired should not automatically be treated as sufficient for claiming the proposed relief.
2. Meaning of Goods Destroyed or Written Off on Expiry of Shelf Life
For understanding the proposed relaxation, it is necessary to distinguish expiry, physical destruction, permanent write-off and an accounting provision made before actual expiry.
| Situation | Meaning | Relevance to proposal |
|---|---|---|
| Expiry of shelf life | Product reaches the end of its legally prescribed permissible period of use or sale | Relevant where supported by applicable law |
| Destruction of expired goods | Expired products are physically destroyed or disposed of | Potentially covered where the applicable law and final amendment satisfy the required conditions |
| Permanent write-off of expired inventory | Expired goods are removed from saleable inventory and charged to expense or loss | Potentially covered, subject to final wording and legal requirement |
| Provision for anticipated expiry | Provision is created for goods that may expire in future | Not automatically covered |
Goods Physically Destroyed after Expiry
A pharmaceutical manufacturer has medicines that have reached their legally prescribed expiry dates.
The expired stock is segregated from saleable inventory and subsequently destroyed through an authorised disposal facility.
This may be a potential case for the proposed relaxation, but eligibility should depend upon the final statutory wording and whether the expiry-related destruction or write-off satisfies the requirement of being “as required by law.”
Goods Permanently Written Off after Expiry
A manufacturer holds expired goods worth ₹20 lakh.
The company removes the products from saleable inventory and permanently writes off their value in its books. Physical destruction is scheduled through an authorised agency.
The recommendation refers to goods destroyed or written off, suggesting that both situations may be relevant.
The final statutory provisions must clarify whether a permanent write-off alone is sufficient or whether further disposal conditions are required.
Provision for Goods Approaching Expiry
A company creates a provision of ₹10 lakh for inventory expected to expire in coming months, although it is still within its permitted shelf life.
An anticipated inventory provision is not necessarily equivalent to an actual write-off upon legally prescribed expiry.
Consequently, the proposed relief should not automatically be applied merely because an accounting provision has been recorded.
3. Industries That May Benefit from the Proposed Amendment
The GST Council has not announced an exhaustive list of eligible industries.
Applicability will depend on:
- the product;
- its legally prescribed shelf life;
- the relevant statutory requirement; and
- the circumstances of destruction or write-off.
Table A – Industry-Wise Practical Cases
| Case | Goods involved | Legal/factual basis | Proposed ITC treatment |
|---|---|---|---|
| 1. Pharmaceutical manufacturer | Medicines expired before sale | Legally prescribed expiry and sale restrictions | Potentially eligible where the applicable law and final amendment satisfy the “as required by law” condition |
| 2. Medicine wholesaler | Expired medicine stock not returned to supplier | Drug-law expiry restrictions | Requires examination of statutory obligation, return/disposal mechanism and final amendment |
| 3. Pharmacy / medical retailer | Expired medicines removed from sale | Applicable drug-law requirements | Requires examination of statutory obligation, manner of disposal and final amendment |
| 4. Pharmaceutical returns | Expired medicines returned by dealers and destroyed by manufacturer | Expiry, return and disposal requirements | Requires clarification; existing CBIC procedure is also relevant |
| 5. Food manufacturer | Packaged food crossing legally applicable expiry/use-by date | Food-safety regulations | Potentially eligible where legally applicable expiry/use-by and disposal/write-off conditions are satisfied |
| 6. Bakery | Cakes and pastries destroyed after prescribed shelf life | Applicable food-safety requirements | Potential eligibility only where relevant law requires the expiry-related treatment and final statutory conditions are met |
| 7. Dairy business | Expired packaged milk and dairy products requiring disposal | Applicable food-safety requirements | Potential eligibility subject to legally applicable expiry/use-by requirements and final wording |
| 8. Medical-device company | Expired sterile medical devices or diagnostic products | Medical Devices Rules and product requirements | Potential eligibility where product-specific legal requirements are satisfied |
| 9. Cosmetics manufacturer | Products reaching legally prescribed expiry | Relevant cosmetics regulations | Product-wise examination |
| 10. Agricultural chemical business | Date-expired regulated pesticides | Statutory segregation and disposal requirements | Stronger potential case where prescribed disposal requirements apply, subject to final statutory scope |
These represent potential applications and are not categories expressly confirmed by the final legislation.
An individual product must be examined under its relevant regulatory regime.
Pharmaceutical Industry – Drugs and Cosmetics Rules, 1945
Rule 65(17) of the Drugs and Cosmetics Rules, 1945 restricts the sale or stocking for sale of drugs after their prescribed expiry dates.
It also provides for separate storage of expired medicines pending withdrawal, reimbursement or disposal, with appropriate identification showing that the products are not intended for sale.
This establishes a relevant statutory foundation for identifying expired medicines.
However, a prohibition on selling expired medicines should not automatically be equated with an obligation to physically destroy them immediately on the expiry date.
Therefore, the precise treatment under the proposed GST amendment must depend upon the final wording and the legal obligations applicable to the particular expired stock.
Food Industry – FSSAI Regulations
The Food Safety and Standards (Labelling and Display) Regulations, 2020 distinguish between best before and expiry/use by.
An expiry or use-by date refers to the point beyond which food may no longer remain safe for consumption and is subject to applicable sale or distribution restrictions.
A best-before date principally relates to the period of expected product quality.
Therefore, the GST treatment of a product crossing a legally applicable use-by date may differ from that of a product merely crossing a best-before date.
The exact product classification and regulatory consequences must be verified before claiming the proposed benefit.
Agricultural Chemicals
Rule 10A of the Insecticides Rules, 1971 deals with date-expired pesticides and requires prescribed segregation, marking and separate storage, followed by disposal in the prescribed manner.
This provides a relevant regulatory basis when testing the proposed GST relief for qualifying expired pesticide stock.
Medical Devices and Cosmetics
Certain medical devices and cosmetics are subject to legally prescribed expiry or shelf-life requirements under their applicable rules.
Not every such product is subject to identical requirements.
Accordingly, eligibility should be examined product-wise rather than inferred solely from the industry in which the manufacturer operates.
4. Important Distinctions for Applying the Relaxation
The proposed relaxation is connected with expiry of shelf life as required by law.
The relevant nature and timing of the stock treatment must therefore be established.
| Situation | Nature of treatment | Potential position |
|---|---|---|
| Expired medicine destroyed | Statutory expiry restriction with subsequent disposal | Potentially covered where legal requirement and final statutory wording are satisfied |
| Expired packaged food disposed of | Expiry/use-by restrictions under food law | Potentially covered where relevant expiry and disposal requirements are legally applicable |
| Date-expired regulated pesticides | Expiry followed by prescribed segregation and disposal | Strong potential case, subject to final wording |
| Expired goods permanently written off pending authorised disposal | Documented legal expiry-related write-off | Potentially covered, subject to final conditions |
| Inventory provision before actual shelf-life expiry | Anticipated expense, without actual expiry | Not automatically covered |
The precise meaning of “destroyed or written off”, and whether an additional statutory direction to destroy the goods must be demonstrated, will depend upon the enacted provision.
5. Treatment of Expired Medicines Returned to Manufacturer
Expired medicines returned by wholesalers or retailers require separate examination because CBIC has already prescribed a specific GST procedure for time-expired drugs and medicines.
Under one recognised route, a registered wholesaler or retailer may return expired medicines to the manufacturer as a fresh taxable supply.
Where the manufacturer avails ITC of the GST charged on that return supply and subsequently destroys the returned medicines, the existing CBIC clarification requires reversal of the ITC availed on the return supply upon destruction.
Accordingly, the existing treatment of returned expired medicines should not be equated automatically with the treatment of goods manufactured by the manufacturer and later expiring in its own stock.
The proposed amendment may alter the ITC consequences for qualifying expiry-related destruction or write-off. However, the precise interaction between the new provision and the existing procedure for returned time-expired medicines will have to be examined once the final statutory wording and consequential clarification are issued.
6. Determination of ITC Attributable to Expired Stock
The Council has not prescribed a separate ITC-attribution formula for the proposed relaxation.
For purchased finished goods, the invoice and stock records may directly identify the input GST.
For manufactured goods, the company may need to determine the GST credits attributable to the expired finished-goods batches using a supportable methodology.
Current-Law Caution
The extent of ITC reversal where expired finished goods have been manufactured from inputs and input services has been subject to differing interpretations and rulings.
Section 17(5)(h) refers to goods, and the precise extent to which ITC on raw materials, common inputs and related input services must be attributed to finished goods subsequently destroyed or written off should therefore not be assumed mechanically in every case.
The following calculation is illustrative only. It should not be treated as a statutory formula or as determining the exact reversal legally required in every factual situation.
Illustrative Calculation
A manufacturer produces 10,000 units of medicine using materials on which eligible GST of ₹1,80,000 is paid.
Assume 2,000 units expire and are destroyed, with identical input costs per unit.
| Particulars | Amount |
|---|---|
| Total units manufactured | 10,000 |
| Expired units | 2,000 |
| Proportion expired | 20% |
| Total attributable eligible input GST | ₹1,80,000 |
| Illustrative ITC attributable to expired units | ₹36,000 |
Under one attribution approach, ₹36,000 represents the proportionate credit attributable to the expired units.
However, the actual legal reversal under the existing provisions must be determined on the facts, nature of the credit, applicable law and relevant interpretation.
Under the proposed relaxation, the amount may become eligible to be retained where the final statutory conditions are satisfied.
This quantity-based allocation is illustrative only.
An actual business must use a supportable method that reflects product-wise inputs, batch costing and the GST credits genuinely attributable to the affected stock.
7. Treatment of Earlier Financial Years
The official recommendation has not expressly provided retrospective application.
Therefore, ITC reversed or treated as blocked in earlier periods cannot be reclaimed merely on the basis of the Council announcement.
Illustrative Historical Reversals
| Financial year | ITC previously reversed |
|---|---|
| FY 2023–24 | ₹2,00,000 |
| FY 2024–25 | ₹4,50,000 |
| FY 2025–26 | ₹6,00,000 |
| Total | ₹12,50,000 |
Any future entitlement to reclaim these amounts will depend upon:
- the commencement date;
- whether transitional or retrospective relief is expressly granted;
- applicable statutory time limits; and
- the legal distinction between ITC never availed and ITC availed but subsequently reversed.
Until the change becomes effective, taxpayers should continue to follow the existing law.
8. Final Legal Conclusion
The proposed relaxation under Section 17(5) is especially relevant for businesses dealing in goods whose shelf life is regulated by law.
It may benefit pharmaceutical manufacturers, medicine wholesalers and retailers, manufacturers of regulated food products, certain medical-device and cosmetics businesses, and sellers of date-expired regulated agricultural chemicals.
The central proposed change is that expiry-related destruction or permanent write-off undertaken as required by law may no longer automatically result in the loss of attributable ITC.
However, the benefit should not be assumed merely because goods have become obsolete, slow-moving or commercially unsaleable.
Legal requirement: The taxpayer should identify the relevant law and establish how the expiry, destruction or permanent write-off falls within the statutory condition contemplated by the final amendment.
Nature of treatment: Physical destruction, permanent write-off and a mere accounting provision are not identical.
Returned expired medicines: The existing CBIC procedure applicable to time-expired medicines returned to manufacturers must be separately considered until consequential clarification is issued.
ITC attribution: Any calculation of attributable ITC for manufactured goods should be based on a supportable factual and legal methodology and should not be treated as a universal statutory formula.
Evidence: Batch-wise records, expiry details, inventory records, destruction/disposal documents and regulatory-compliance documentation will remain important in substantiating the claim.
Important: As of 20 October 2026, the relaxation remains a GST Council recommendation. The enacted amendment, commencement date and any implementing clarification will determine the final eligibility.
