When medicines are supplied by wholesalers to retailers in large quantities and the retailers are not able to sell all the supplies before their expiry date, the drugs are returned by them. Under GST, such expired medicines can be returned in the ways explained below. Let's know about GST on expired goods, or Return of Time Expired Drugs or Medicines.
This article discusses the following topics:
Medicines are significant to people’s health, and therefore they are purchased with extreme caution. The first thing customers check while buying drugs is their expiration date. Usually, the manufacturer or wholesaler first sells the medicines to the retailers, and then the retailers further sell the said drugs to their customers. A tax invoice is issued for taxable goods and a bill of supply is issued for exempted goods. But do you know about itc reversal on expired goods, or expiry breakage or in GST and accounting treatment of expired goods?
However, it is a usual occurrence that the retailer may fail to sell the whole stock of his/her medicines before they expire. Since customers would not purchase expired products, the retailer will be forced to return the medicines to the manufacturer or wholesaler through the supply chain which comes under expiry goods return in GST and expired goods return policy.
In Return of Time Expired Drugs or Medicines, or medicine expiry return format case, the Goods and Services Tax (GST) or GST on expired medicines has proposed two options to the wholesaler and the retailer which is said to be an expiry medicine return policy.
These procedures were issued in the GST circular dated October 26th, 2018.
If the wholesaler or retailer chooses to treat the returned expired medicines as fresh supply, then there will be three scenarios in this:
|Scenarios||Registered Person||Composition Dealer||Unregistered Person|
|Document Issued||Invoice and Charge Tax (bill of supply for exempt goods)||Bill of Supply||Any commercial document without charging tax|
|Value||As shown in invoice, or based on which goods were supplied previously||As shown in invoice, or based on which goods were supplied previously||As shown in invoice, or based on which goods were supplied previously|
|Will ITC be available?||Yes, wholesaler or manufacturer can avail ITC on the levied tax (if other conditions of CGST Act Section 16 are fulfilled)||No ITC||No ITC because of no tax charged|
The manufacturer or wholesaler will incur the following implications:
The wholesaler may also choose the option to return medicines through issuance of a credit note for them. This retailer or wholesaler returning the medicines may then issue a delivery challan. The following steps may take place while returning expired medicines by issuing credit note:
Step 1 – The manufacturer or wholesaler may issue a credit note to the wholesaler or retailer returning expired goods
Step 2 – The wholesaler or retailer may return the expired goods along with a delivery challan.
There may be two scenarios related to the time specified in the CGST Act Section 34(2) for issuing a credit note on the return of expire goods:
Upon receiving the expired medicines, the manufacturer will destroy those drugs and reverse the ITC attributable to their manufacture.