In a significant relief to the pharmaceutical industry, the government has clarified that the expired or damaged goods that are returned to manufacturers from stockists and distributors will not be treated as “supply” and hence not attract a GST levy of 12%. Earlier in October, in a submission to Ananth Kumar, the union minister for chemicals and fertilizers, the Indian Pharmaceutical Alliance had noted that the industry annually receives around Rs 3300 to Rs 5500 crore in expire or damaged stock and expected a hit of about Rs 500 crore. The IPA has opposed the wrong categorization as those drugs cannot be reused and had no commercial value.
The lobby group asserted that GST is a tax based on “consumption” of goods and services and that the damaged or expired good are destroyed, as per laws governing the drug industry. The IPA had pointed to the “additional cost liability” and said that while the manufacturers are expected to accept such returns even after a lapse of two years, they are also required to give credit to the stockists and distributors for the value of the medicines returned. Receiving the expired/damaged medicines on tax invoice may be construed as purchase of such goods, which may not be in consonance with various regulations applicable in this regard, the IPA had said citing ruled under the Drugs and Cosmetics Act.