Retail Business in Indian Pharma Trade is a highly fragmented one and majority sales of Pharma Products are done through the Medical Shops dotting each and every nook and corner of the Country and they are mainly in Unorganized Sector. Sales turnover of most of these Retailers is in usually around Rs. 20 lakhs to Rs. 50 lakhs per annum. These sorts of Medical Shops may constitute 90% of the Pharma Retail Trade. These Medical Shops source the Products/stocks mainly from various Wholesalers/ Stockists and generally these Wholesales/Stockists represent 3 to 4 Manufacturers in a particular Geographic Area.
The peculiarity of the Pharma Retail Trade is due to the following accounts;
a. The existence of several Brands containing the same Medicine as they are produced by various manufacturers
b. Each manufacturer having multiple Brands containing the same Medicine catering different Channels,
c. Expiry of Medicines due to crossing the date of Expiry and generally this period is around 2 to 3 years from the date of manufacture in most of the cases.
Due to the availability of wide Range, Doctors and Physicians prescribe various brands of the same medicines from time to time, as they do not wish to appear to be prescribing the same medicines to each and every patient having the same type of medical issues/indications. In addition to this, Pharma Manufacturers frequently indulge in launching the same Medicine with different Brand namess by creating Channel Marketing like Cardiology/Diabetology/ Urology/ENT Divisions. To cater these diverse needs, the Medical Shops are forced to keep multiple Brands in their Stores from time to time.
Due to frequent changes in the prescription pattern of the Doctors and Physicians, Some Medicines may become Non-Moving over a period of time. The Medical Shop Owners used to return these Non-Moving Brands to the Wholesalers and get them replenished with other Brands. In pre- GST era, documentation was not insisted upon and the Sales Returns were happening without much documentation if not “Without any Documentation” and these were dealt in mutual trust. However, the GST regime insists and demands the documentation of each and every transaction. Thus Sales Return also invariably shall require to be supported by Some form of Documentation be it Invoice, Delivery Challan etc.,.
As these Medical Shops are having Sales Turnover around Rs. 20 lakhs to Rs.50 lakhs per annum, the Shop Owners opted for Composition Scheme due to its promised attractiveness of charge of 1% uniform tax on all the sales and less documentation etc.,. At the same time, this Composition Scheme is restrictive in nature, as they are not allowed to display the Charge of GST separately in the Sale Invoices though these taxes are in built in the Invoice Value.
On the Other hand, the Wholesalers generally whose turnover is above Rs. 75 lakhs and above per annum will be in Regular Scheme of GST and charges regular GST at applicable rates of GST viz., 5%, 12%, 18% and 28% depending on the Product HSN Classification. They will be taking the ITC of the taxes paid on the Invoices issued by the GST Registered Persons who are in the Regular Scheme and these Invoices display the charge of GST separately. The Sales Returns from the Suppliers in Regular Scheme can be made by raising a Tax Invoice and the Wholesaler can take ITC of the taxes involved. Whereas in the case of Composition Dealers, the Invoices issued by them do not contain these mandatory details, thereby, become ineligible documents for taking ITC. Therefore, in the case of Composition Dealers, the seamless transfer of ITC in the Sales Chain gets broken resulting in loss of ITC and it led to confusion in the Pharma Trade at Retail Level .
It has come to notice that many Wholesalers, to avoid these issues, are insisting that Sales Returns should happen in the month of Purchase itself so that they can revise the invoice for the exact quantity. But generally the sales Returns do not happen in the month of Purchase itself and do happen over a period of time may be 6 months to 1 year from the date of Purchase or 3 months prior to Date of Expiry. Then the general question arises about overcoming this Standoff under the Legal Frame Work of GST Act and Rules.
In this background of issues, If we examine the provisions of the GST Act to arrive at a convenient solution, we can observe the specific provisions provided under Section 34 of the GST Act comes to rescue wherein the Registered Persons can issue a Document called “Credit Note”. The provisions of the Section 34, ibid, are reproduced for the benefit of readers as under;
34. (1) Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed.
(2) Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:
Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.
If the above provisions of Law are perused, One can observe that the Pharma Wholesalers can issue the Credit Note while taking back the Sales Returns from the Retail Medical Shops who under Composition. And these Wholesalers can compute their Tax Liability/Outgo of a particular month by adjusting or reducing the amount of tax contained in the Credit Notes issued during that month. This Legal route can be utilized by the Wholesalers to handle the Business without any hassles. The specified particulars that are to be mentioned in the Credit Notes are provided in Rule 53 of CGST Rules and they include the simple details like Name, Address and GSTIN of the Wholesaler, Serial No, Name, Address and GSTIN of the Retail Trader, corresponding original Tax Invoice No concerning Sales Returns issued by the Wholesaler, Value of taxable Supply og goods, rate of tax and amount of tax debited to the recipient and Signature of the Wholesaler or his authorized representative.
By applying this solution, the Wholesalers can take back the Sales Returns, though the ITC chain is disrupted at the Retail Level, without any fear of loss of ITC involved. This method can be explored for handling Sales Returns in any Business wherever Wholesaler and Retail Trader is involved, be it FMCG or any other Trade and this is not just limited only to Pharma Retail Trade as the GST Act and Rules are One and the Same for every business. Hope this article helps in assisting the cause of “Ease of doing Business” propounded by the Government.
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