GST

Procedure for Return of Expired Medicine under GST

To cure diseases we use medicine. Before buying medicine we see the date of expiry because, after the expired date, medicine loses its potentiality. It is illegal to sell medicine after the expiry date. The manufacturer sells medicine to the wholesaler and the wholesaler sells medicine to Retailer. If medicine is found to be expired, then it will be returned back to the Manufacturer. Central Board of Indirect Taxes and Customs (CBIC) provides guidelines for returning of expired medicine under the GST Act. (Goods and Service Tax Act). This article describes the Return of Expired medicine under GST.

In this blog, we will help you to know more about the procedure for the return of expired medicine under the GST Act.

What is Return of Expired Medicine under GST?

In the Pharmaceutical industry or sector, medicine has a defined term of validity and the date of validity is printed on the medicine cover. The date of validity of the medicine is known as expiry date. It is mandatory on part of every medicine retailer to return the expired medicine to the manufacturer. Expired medicine has no value and importance in the Indian Pharmaceutical industry. Moreover, it is prohibited to sale expired medicine in India.

GST is applicable to every taxable item including medicine. At the time of buying medicine from the manufacturer, the buyer paid tax on such medicine. So in case of expired medicine, everyone has a doubt regarding the return of taxes under the GST regime. Under the GST regime, Circular was issued for the return of expired medicine.

For returning an expired medicine, a retailer needs to handover same to the wholesaler and after that, it is the duty of wholesaler to handover same to the manufacturer.

Documents Required for Return of Expired Medicine

Under the GST regime, there is a provision for the return of expired medicine. Certain documents are required for the return of expired medicine such as:

• Supply bill of medicine
• Credit Note
• Delivery Challan

Procedure for Return of Expired Medicine under the GST Act

In the GST Act, 2016 there is a provision for the return of expired medicine. The procedure as laid down under the CBIC Circular for the return of expired medicine/expired goods is given below:

1. Return of Expired medicine shall be treated as a fresh supply
2. Return of Expired medicine by issuing a Credit note.

1. Return of Expired Medicine shall be treated as a fresh supply

As per Circular issued by CBIC, the return of expired medicine must be treated as a fresh supply.

• The retailer or wholesaler can return the expired medicine to the manufacturer.
• Issuance of Invoice is mandatory for the return of such expired medicine.
• Value of the medicine at the rate in which it was brought earlier must be mentioned in the invoice.
• The value of the buying rate must be taken as the value of the return supply.

Various options Available to different Suppliers

• Option for wholesaler Or Manufacture: A wholesaler or manufacturer, who receives such return of expired goods is eligible to avail Input tax credit of the tax levied on the said return after fulfillment of conditions mentioned in Section 16 of the CGST Act.

• Option for composition taxpayer in respect of the return of Expired medicine: A composition taxpayer can return the expired goods by issuing a supply bill and after payment of applicable tax rate. However, the recipient of the return supply i.e. Manufacturer or wholesaler will not avail any Income tax credit (ITC).

• Option for an unregistered person in respect of the return of Expired medicine: In case, an unregistered person who seeks to return the expired items, then he can do it by issuing any commercial document but without charging any tax.

• Consequence of destruction of Expired medicine: If a manufacturer destroyed the expired goods returned by a retailer or supplier, then it is mandatory for the manufacturer to reverse the ITC availed on such return supply.

2. Return of Expired Medicine by Issuing Credit Note

The second option available to the suppliers is issuing a credit note. Below you can find more details:

As per Section 34(1) of the Central Goods and Service Tax Act, 2017, in case the goods are returned back by any recipient(Wholesaler or retailer), then the supplier(Wholesaler or Manufacturer) is entitled to issue a credit note in this regard.

• In case of return of expired medicine by the retailer and a wholesaler, the manufacturer or a wholesaler who has earlier supplied the medicine has an option to issue a credit note.
• To return an expired medicine, it is necessary for the retailer or wholesaler to issue a delivery challan.
• There is no specified time limit for issuance of a Credit Note.

Adjustment of Tax Liability

Where the credit notes are issued prior to the September month of every financial year, then the tax liability of a concerned person who issued credit notes will be adjusted. If Manufacturer or Wholesaler fails to issue credit note within the time limit as prescribed under section 34 0f the CGST, then the supplier is bound to adjust the tax liability.

The supplier will adjust tax liability subject to the condition that the person who returned the expired medicine had either not availed the ITC or reversed the ITC against the returned goods.

Time Limit

In case prescribed time limit as provided under section 34 of the CGST Act lapses, then the supplier of such return of goods can still issue a credit note for such returned goods.However, after the lapse of time, the supplier cannot adjust the tax liability.

Where, expired goods were returned beyond the time limit as specified in section 34 of the CGST Act and a credit note was already issued, then the supplier of such returned goods is not required to declare credit note on the common portal.

Consequence of the Destruction of Expired medicine

In case, a manufacturer destroyed the expired goods returned by a retailer or supplier, then the manufacturer was bound to reverse the ITC attributable to the manufacturer.

In the below table, we demonstrate about the format of return of expiry medicine.

Particulars	Date of supply of medicine from Manufacturer to wholesaler and wholesaler to retailer	Date of return of medicine from retailer to wholesaler and wholesaler to manufacturer	Treatment in terms of tax liability and credit note
Case 1	3rd September 2017	15th January 2018	Credit note may be issued by the Supplier(Manufacturer/wholesaler) and the same will be uploaded by the supplier in the common portal. The supplier can adjust tax liability, where such supplier had either not availed ITC or reversed the ITC.
Case 2	2oth September 2017	25th January 2018	Supplier(Manufacturer/wholesaler) can issue a credit note. It is not required for such supplier to upload the same on the common portal. In this circumstance, the tax liability cannot be adjusted by such supplier.

Government Circular for GST implication on Return of Expired Medicine

CBIC on 28th October 2018 in the exercise of its power conferred under Section 168 (1) of the Central Goods and Service Tax Act, 2017 (CGST) issued Circular No. 72/46/2018-GST^[1] for purpose of return of expired medicine under GST regime.

Conclusion

These days it is seen that the common trade practice in the pharmaceutical sector is that the drugs or medicines are sold by the manufacturer to the wholesaler and by the wholesaler to the retailer on the basis of an invoice or bill of supply. As we discussed, after the expiry date, unsold quantities are returned to the manufacturer. Since, taxes are already paid on such medicine, the issue was how to get back taxes paid on unsold quantity under GST regime. CBIC on time to time issues various notifications in this regard.

We hope we cleared all your doubts on the procedure of return of expired under GST. For more clarifications, drop an email at info@enterslice.com or directly contact Enterslice.

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