GST Tax and Accounting Treatment of Expired Goods

In Pharmaceutical Sector, 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/bill of supply as case may be. Such goods have a defined life term which is normally referred to as the date of expiry. Such goods which have crossed their date of expiry are colloquially referred to as time expired goods and are returned back to the manufacturer, on account of expiry, through the supply chain.

CBIC have clarified two procedures to ensure uniformity in above case:

1.Return of time expired goods to be treated as fresh supply.

If the person is a registered person (other than a composition taxpayer)
He may, at his option, return time expired goods by treating it is as a fresh supply and issuing an invoice for the same.
The wholesaler or manufacturer, as the case may be, who is the recipient of such return supply, shall be eligible to avail ITC of the tax levied on the return goods.
If the person is a composition taxpayer
He may, return time expired goods by issuing a bill of supply and pay tax at the rate applicable to a Composition taxpayer.
If the the person is an unregistered person
He may, return time expired goods by issuing any commercial document without charging any tax on the same.

NOTE: Time Expired Goods destroyed by Manufacturer
Manufacturer is required to reverse the ITC availed on the return supply (i.e  ITC availed on the return supply).
Example: Manufacturer receives the return supply of Rs. 50/- and ITC on return Supply is Rs. 5/- and manufacturer has availed ITC of Rs. 2/- at the time of manufacture of medicines valued at Rs. 10/-. When the time expired goods are destroyed by the manufacturer he would be required to reverse ITC of Rs.2/- and not of Rs. 5/-.

2.Return of time expired goods by issuing Credit Note

The manufacturer or the wholesaler who has supplied the goods to the wholesaler or retailer has the option to issue a credit note in relation to the time expired goods returned by the wholesaler or retailer.
The retailer or wholesaler may return the time expired goods by issuing a delivery challan.
Where the time expired goods, which have been returned by the retailer/wholesaler, are destroyed by the manufacturer, he/she is required to reverse the ITC attributable to the manufacture of such goods, in terms of the provisions of clause (h) of subsection (5) of section 17 of the CGST Act.

Note:Time Limit of issue of Credit Note In Above Case
Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier.

For Example:

  1. If Date of Supply of goods from manufacturer/wholesaler to wholesaler/retailer is 31st  December 2017 and Date of return of time expired goods from retailer/wholesalerto wholesaler / manufacturer is 15th September 2018 then Credit note will be issued by the supplier with Tax and require to show on Comman Portal.
  2. If Date of Supply of goods from manufacturer/wholesaler to wholesaler/retailer is 31st  December 2017 and Date of return of time expired goods from retailer /wholesalerto wholesaler / manufacturer is 15th October 2018 then Credit note will be issued by the supplier without Tax and does not require to show on Comman Portal.



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