Return of Expired Medicine Under GST
Return of Expired Medicine Under GST
There was various confusion prevailing within the pharmaceutical industry with regard to the treatment of the time expired drugs/medicines under GST and to overcome the said confusion, the Central Board of Indirect Tax and Customs, vide circular no. CBEC/20/16/04/2017-GST dated 26th October 2018, has laid down the procedure which can be followed in case of return of time expired drugs.
Flow of Sale Under Pharmaceutical Industry
In order to understand the procedure laid down by the board, one needs to understand the flow of sale under the pharmaceutical industry. In the pharmaceutical industry, the drugs/medicines are sold by the manufacturer to the wholesaler and from the wholesaler to the retailer.
Meaning of the Term ‘Time Expired Goods’
In the case of drugs/medicine, there is a defined life term which is generally referred to as the date of expiry (expiry date). The goods which have crossed the date of expiry are colloquially referred to as ‘time expired goods’.
Methods of Accounting
Option 1 – Return to be Treated as Fresh Supply
Option for Normal Registered Person
- This option is available only to the registered person, other than a person registered as a composition taxpayer.
- Under this option, the supplier can return the time expired medicine treating the same as fresh supply.
- The supplier needs to issue a tax invoice and charge appropriate tax thereon.
- The value of goods as shown in the invoice on the basis of which the goods were supplied earlier can be taken as the value of such return supply.
- The recipient of the time expired goods, in this case, is eligible to avail the ITC subject to provisions of section 16 of the Central Goods and Service Tax Act, 2017.
Option for Composition Taxpayer
- In case the person registered as composition taxpayer returns the time expired medicine, he has an option to return the said goods by issuing a bill of supply.
- When the person issues a bill of supply, he is required to pay the tax at the appropriate rate applicable.
- The Input Tax Credit will not be available to the recipient of the return supply.
Option for Unregistered Person
- In case the person is unregistered under GST, such person can return the time expired goods by simply issuing a commercial invoice without charging any tax on the same.
Returned Goods are Destroyed by the Manufacturer
If the manufacturer destroys the time expired goods which are being returned by the wholesaler/retailer, in such case treatment of the credit would be as follows –
- The manufacturer is required to reverse the ITC which was availed at the time of the receipt of the time expired goods. The said reversal is to be done as per the provisions of section 17 (5) (h) of the Central Goods and Service Tax Act, 2017.
- It is important to note that the ITC which needs to be reversed is the one availed at the time of return of time expired goods, however, the ITC availed at the time of manufacture of time expired goods is not to be reversed.
Option 2 – Return by Issuing Credit Note
The provisions of section 34 (1) of the Central Goods and Service Tax Act, 2017, allows the manufacturer/wholesaler, who has supplied to the goods to wholesaler/retailer, to issue a credit note in relation to the time expired goods returned by the wholesaler/retailer.
| Time Limit of Issuance of Credit Note | Tax Liability Adjustment | Other Conditions |
| Credit note issued within the month of September following the end of the financial year in which the supply was made or a credit note issued within the date of furnishing of the relevant annual return, whichever earlier | Tax liability is allowed to be adjusted since the credit note has been issued within the time limit specified in section 34 (2) | Tax adjustment is allowed only if the person returning the time expired goods has either not availed the ITC or if the person has availed ITC, the same has been reversed in respect of goods being returned. |
| Credit note issued after the time limit specified above | Tax liability is not allowed to be adjusted. | _ |
