Circular to clarify the procedure in respect of return of time expired drugs or medicines

Circular No.: 72/46/2018-GST
Date of Circular: 26th October 2018
Relevant Sections and Rules:

• Central GST Act, 2017:
  • Section 34: Credit Notes
  • Section 17(5)(h): Reversal of ITC for destroyed goods
  • Section 168(1): Power to issue instructions
• CGST Rules, 2017:
  • Applicable indirectly through documentation and treatment guidelines

Summary of Circular:

This circular clarifies the procedure for return of time-expired drugs or medicines under GST, offering two alternative approaches for such returns: as a fresh supply or via credit note, along with their respective implications on tax and ITC.

1. Option A: Return Treated as Fresh Supply

• By Registered Person (Non-Composition):
  • Return is treated as a fresh outward supply by issuing a tax invoice.
  • Taxable value: same as earlier transaction.
  • Manufacturer/wholesaler may claim ITC on returned supply, subject to Section 16 conditions.
• By Composition Taxpayer:
  • Returns via bill of supply at composition tax rate.
  • No ITC available to recipient.
• By Unregistered Person:
  • Goods returned using a commercial document, no tax charged.
• If Returned Goods Are Destroyed by Manufacturer:
  • Manufacturer must reverse ITC availed on such return supply, not the original ITC taken on manufacture.
  • Example: If ₹15 ITC availed on return, reverse ₹15 even if only ₹10 was availed on original manufacture.

2. Option B: Return via Credit Note

• Supplier (manufacturer/wholesaler) may issue a credit note under Section 34(1) for returned goods.
• Two Scenarios:
  • If Credit Note Issued Within Time Limit (Sec 34(2)):
    • Supplier may adjust tax liability, provided recipient has not availed ITC or has reversed it.
    • Credit note must be declared on GST portal.
  • If Credit Note Issued After Time Limit (Post-September of Next FY):
    • Tax liability cannot be adjusted.
    • No requirement to upload credit note on portal.
• If Manufacturer Destroys Returned Goods:
  • He must reverse ITC attributable to manufacture of expired goods under Section 17(5)(h).

3. Broader Applicability:

• Though focused on expired medicines, this circular also applies to goods returned for other reasons, using similar procedures.

Source: Circular No.: 72/46/2018-GST