When medicines are delivered to retailers in large quantities by wholesalers and the retailer cannot sell all supplied medicine before the expiration date, in that condition, they return the medicines to wholesalers. To return of expired medicine is allowed under the regime of Goods & Service Tax.
The Amendment Under Drugs & Cosmetic Rules, 1945
There was confusion prevailing within the pharmaceutical industry which are successfully availed the Drug License with regarding the treatment of the time expired drugs/medicines under GST. In order to overcome the said confusion, the Central Board of Indirect Tax and Customs, announced a notification with circular no. CBIC/20/16/04/2017- GST on dated 26th October 2018, has provided the procedure accompanied in return of expired medicines.
The circular has come in the existence of two options for the return of expired medicines is as follows:-
First Option
- If the business returning goods is an incorporated establishment, it may grant a tax invoice by considering returning as a fresh medicine supply.
- The value of the fresh supply of medicine will be equal to the original supply of medicine’s value.
- The returned expired medicine recipient will be eligible to demand Input Tax Credit based on such tax invoice.
- If the manufacturer disposes of expired drugs, he needs to reverse ITC available on the return supply.
- The reversal is to be made on the ITC used on such returned supply rather than the original supply of medicines.
- If the returning medicines are a composition dealer, he may issue a bill of supply by considering the return as a fresh supply.
- Further, the returned medicines’ recipient shall not be eligible to demand ITC in the said case.
- In case the person who is returning goods is unregistered, he may return the goods by issuing a commercial document without charging any tax on the same.
Second Option
- The wholesaler /manufacturer may issue a tax credit note, and the medicines may be returned under cover of a delivery challan.
- Accordingly, the wholesaler /manufacturer will be able to claim a tax adjustment, subject to reversal of credit by the recipient of a tax credit note.
- The said credit notes are to be issued before September, following the end of the financial year.
- If said credit notes are not issued within the said deadline, a commercial credit note may be issued by the manufacturer/ wholesaler.
Process for the Return of the Time Expired Goods under GST
The retailer/ wholesaler can follow either the below-discussed process to return the time expired medicines under GST.
Conditions when Return of Expired Medicines to be Treated as Fresh Supply
The below discussed are the conditions return of expired medicines to be treated as fresh supply.
Registered Person
If the person returning the expired medicine is a registered person, the return of the goods will be treated as a fresh supply
- Value of the said goods as mentioned in the invoice based on the goods were provided 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[1].
Composition Taxpayer
If the person returning the time expired medicine is a composition taxpayer;
- Return the said medicines by issuing a bill of supply and pay tax at the rate applicable
- The recipient is not eligible to avail ITC of said return supply
Unregistered Person
If the person returning the expired medicine is not a registered person, the return of the goods will be treated as fresh supply
- Recipient may return the said medicines by issuing any commercial document without imposing any tax liability.
When the manufacturer disposes of the expired medicines which have been returned by the retailer/wholesaler;
He/she is needed to reverse the ITC used on the return supply u/s 17(5) (h) of the CGST Act. However, ITC which is needed to be reversed in the situations where the ITC is available on the return of supply and not in the ITC that is attributable to the manufacture of such time expired medicines.
Document to be Issued on Expired Goods
- As per the section 34(1) of the CGST Act, the wholesaler or the manufacturer who has supplied the goods to the retailer, as the case may be, has the option to issue a credit note in related to the expired medicines returned by the wholesaler or retailer.
- In case the credit note is provided within the stipulated time specified in section 34(2) of the CGST Act, the tax liability may be regulated by the supplier, provided that the person returning the time expired medicine has either not used the ITC or if used has reversed the ITC so used against the medicines being returned.
- In case they are returned the expired medicines beyond the time period specified and a credit note is provided, there is no require declaring such credit note on the common portal by the supplier cannot adjust as tax liability.
Concluding Remark
We are all aware of medicine’s healing power and the remedial benefits of medication in case of a vivid disease. The medical culture and studies have provided us such benefits in the form of drugs/tablets to cure us and others. The above-said articles highlight the area where we cannot sell out such medicines among the public before their expiry dates. In such a scenario, the drug and cosmetics act has provided us different legal methods to return the unseal and expired medicines to the resource or its origin. The codified law also provides us some of the benefits and relaxations in returning those medicines in income tax. This guideline is incorporated under the act for the public interest, and we must duly follow it.
Read our article:A Complete Overview on Drug License Rules in India
