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GST Implication on return of expired medicines / drugs

As per recent circular clarification via Circular No. 72/46/2018-GST dated 26th October, 2018 The procedure to be followed in respect of return of time expired drugs or medicines under the GST laws. The drugs or medicines are sold by the manufacturer to the wholesaler and by the wholesaler to the retailer on the basis of an invoice/bill of supply as case may be. They have a defined life term which is referred to as the date of expiry and on crossing the date of expiry, are returned back to the manufacturer through supply chain.

Therefore, the retailer/ wholesaler can follow either of the below mentioned procedures for the return of the time expired goods:

Return of time expired goods to be treated as fresh supply

a) Registered person – If person returning the time expired goods is a registered person

• Return of goods to be treated as fresh supply
• Value of the said goods as shown in the invoice on the basis of which the goods were supplied earlier may be taken as the value of such return supply
• Recipient is eligible to avail Input Tax Credit on said return supply subject to section 16 of the CGST Act.

b) Composition taxpayer -Person returning the time expired goods is a composition taxpayer
• Return the said goods by issuing a bill of supply and pay tax at the rate applicable
• Recipient is not eligible to avail ITC of said return supply

c) Unregistered Person- If person returning the time expired goods is an unregistered person:

  • Recipient may return the said goods by issuing any commercial document without charging any tax.

Where the time expired goods which have been returned by the retailer/wholesaler are destroyed by the manufacturer,

  • he/she is required to reverse the ITC availed on the return supply in terms of section 17(5) (h) of the CGST Act. However, 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.

Example: A manufacturer has availed ITC of Rs. 10/- at the time of manufacture of medicines valued at Rs. 100/-. At the time of return of such medicine on the account of expiry, the ITC available to the manufacturer on the basis of fresh invoice issued by wholesaler is Rs. 15/-. So, when the time expired goods are destroyed by the manufacturer he would be required to reverse ITC of Rs. 15/- and not of Rs. 10/-.

Document to be issued on expired goods:-

a) As per section 34(1) of the CGST Act, 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, as the case may be.

b) If the credit note is issued within the time limit specified in section 34(2) of the CGST Act, the tax liability may be adjusted by the supplier, provided the person returning the time expired goods has either not availed the ITC or if availed has reversed the ITC so availed against the goods being returned. However, if the time limit has expired, a credit note may still be issued but the tax liability cannot be adjusted by him in his hands

c) Further, in case they are returned beyond the time period specified and a credit note is issued, there is no requirement to declare such credit note on the common portal by the supplier as tax liability cannot be adjusted in this case.

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