The pharmaceutical industry has welcomed the government’s move to withdraw GST on return of expired and damaged drugs. The GST levied on return of such goods was expected to cost the industry Rs. 500 crore.Joint commissioner, GST Himani Bhayana in a letter to Indian Pharmaceutical Alliance (IPA), a representative body of 20 research based drug companies, has clarified that return on expired/damaged goods from distributor to the manufacturer will be treated as return of goods and not as supply and will not attract 12 per cent GST.
A credit note may be issued at the time of return of expired/damaged goods. Further, under section 34 of CGST Act, 2017 there is no time limit for issuance of credit note. However, the tax liability can be adjusted if the details of the same are declared by September following the end of the financial year. Thus, in case the credit note is issued after the specified time period, the tax liability would not be adjusted and the burden would have to be borne by the supplier, the joint commissioner stated.With respect to whether industry would be required to reverse input tax credit on the medicines which are destroyed, Bhayana said as per Section 17(5)(h) of the CGST Act, input tax credit taken on such expired/damaged medicines will have to be reversed.
On October 4, 2017 DG Shah, secretary general, Indian Pharmaceutical Alliance in a letter to Ananth Kumar, Union Minister for Chemicals and Fertilisers had stated that pharmaceutical industry receives about 3% to 5 % of its sales by way of date expired and damaged goods from stockists/distributors. The value of date expired/damaged stock is around Rs. 3,300 crore – Rs. 5,500 crore annually. These date expired and damaged stocks are not fit for human consumption and therefore cannot be re-used or sold and consequently has no commercial value.
Shah said GST which is levied on consumption of goods and services is applicable even on the return of expired/damaged medicines; and no input tax credit is admissible in respect of the goods which are being destroyed. Accordingly, the date expired/damaged medicines are received by the manufacturers through the tax invoices with GST. The GST on such returns, become additional cost to the manufacturers. Further, 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.As per the Drugs and Cosmetic Rules, no drugs shall be sold or stocked by the licensee after the date of its expiry as mentioned in the label, pack or wrapper etc. However, the manufacturers are required to accept such returns from stockists/distributors even after a lapse of 2 years. The expired/damaged medicines returned are destroyed as per the guidelines. Further, on return of expiry/damaged medicines, the manufacturers are required to give credit to the stockists/distributors for the value of the medicines returned.IPA had sought waiver of reversal of input tax credit on the medicines so destroyed.Welcoming the government’s decision on return of expired drugs, Indian Drugs Manufacturers’ Association (IDMA) national president Deepnath Roy Chowdhury said “There was a lot of confusion on the issue. The government clarification is a very positive step.”