Return of Expired Medicine Under GST

The pharmaceutical industry grapples with various confusions regarding the treatment of expired medicines under GST registration. To address these issues, the Central Board of Indirect Tax and Customs released circular no. CBEC/20/16/04/2017-GST on 26th October 2018. This document provides clarity on the return procedure of expired drugs.

Flow of Sale in the Pharmaceutical Industry

Understanding the procedural flow outlined by the board requires insight into the sales process within the pharmaceutical industry. Medications journey from the manufacturer to wholesalers, and then to retailers before reaching consumers.

Treatment of Return of Time Expired Medicine Under GST

Meaning of ‘Time Expired Goods’

In pharmaceuticals, 'time expired goods' refer to products that exceed their expiration date. Managing these items requires a structured approach to avoid possible compliance issues.

Methods of Accounting for Expired Medicines

Option 1 – Consider Return as Fresh Supply

For Normal Registered Persons

This option is solely for registered persons excluding composition taxpayers.
Suppliers can treat expired medications as fresh supplies, requiring a tax invoice with applicable taxes.
The original invoice value is used for such return supplies.
Recipients can avail of Input Tax Credit (ITC) in compliance with section 16 provisions under the Central GST Act, 2017.

For Composition Taxpayers

Composition taxpayers can issue a bill of supply for returning expired goods.
The applicable rate of tax must be paid upon issuing the bill of supply.
Note that ITC is not available to recipients in these transactions.

For Unregistered Persons

Unregistered persons may return expired goods using a commercial invoice without tax implications.

When Returned Goods are Destroyed by Manufacturers

If the manufacturers decide to destroy returned expired medicines, the ITC treatment will be as follows:

Reversal of ITC taken upon receipt of expired goods is mandatory as per section 17 (5)(h) of the Central GST Act, 2017.
It is critical to retain ITC availed during manufacturing stages of these now expired goods.

Option 2 – Return via Credit Note

According to section 34(1) of the Central GST Act, 2017, credit notes can be issued by manufacturers or wholesalers for returning expired goods.

Time Limit for Issuing Credit Note	Tax Liability Adjustment	Additional Conditions
Credit note issued by September following the financial year of supply or before furnishing the annual return, whichever is earlier	Allows tax liability adjustments as per section 34(2)	Adjustments are viable if the returning party hasn't availed or has reversed applicable ITC.
Credit note issued beyond the specified deadline	No tax liability adjustment allowed.	_

For more details, visit our section on online GST filing. Additionally, explore our guides on GSTR-1 filing and GSTR-9 annual returns to ensure comprehensive compliance.

Need assistance? Learn about CA-assisted GST filing services or check out the GSTR-3B return form for detailed information.

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Frequently Asked Questions

Common questions about Return of Expired Medicine Under GST.

In the case of drugs/medicines, there is a defined life term which is generally referred to as the date of expiry (expiry date). The goods which have crossed the date of expiry are colloquially referred to as "time expired goods".

A normal registered person, other than a composition taxpayer, has two options for accounting for the return of time expired medicines under GST: (1) treat the return as a fresh supply by issuing a tax invoice and charging appropriate tax, or (2) issue a credit note to adjust the tax liability.

In case the person is registered as a composition taxpayer, they have an option to return the time expired medicines by issuing a bill of supply and paying the tax at the appropriate rate applicable. However, the recipient of the return supply will not be eligible for input tax credit.

In case the person is unregistered under GST, they can return the time expired goods by simply issuing a commercial invoice without charging any tax on the same.

If the manufacturer destroys the time expired goods which are being returned by the wholesaler/retailer, they are required to reverse the input tax credit which was availed at the time of the receipt of the time expired goods, as per the provisions of section 17(5)(h) of the Central Goods and Service Tax Act, 2017.

The credit note for the return of time expired medicines should be issued within the month of September following the end of the financial year in which the supply was made or within the date of furnishing of the relevant annual return, whichever is earlier.

If the credit note is issued after the time limit specified in section 34(2) of the Central Goods and Service Tax Act, 2017, the tax liability is not allowed to be adjusted.

Yes, if the supplier chooses to treat the return of time expired medicines as a fresh supply by issuing a tax invoice and charging appropriate tax, the recipient of the time expired goods is eligible to avail the input tax credit, subject to provisions of section 16 of the Central Goods and Service Tax Act, 2017.

If the return of time expired medicines is accounted for by issuing a credit note, the tax adjustment is allowed only if the person returning the time expired goods has either not availed the input tax credit or if they have availed it, they have reversed the same in respect of the goods being returned.

If the return of time expired medicines is treated as a fresh supply, the value of goods as shown in the invoice on the basis of which the goods were supplied earlier can be taken as the value of such return supply.