Dec 102018
 

Return of time expired goods under GST

Meaning of “Expiry of time”:

For layman:

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. They have a defined life term which is referred to as the date of expiry and on crossing the date of expiry these are returned back to the manufacturer through supply chain.

Under GST:

Section 34(1) and (2) is reproduced as below:

  • Where a tax invoice has been issued for supply of any goods or services or both and
    1. The taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or
    2. Where the goods supplied are returned by the recipient, or
    3. Where goods or services or both supplied are found to be deficient,

The registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed.

  • 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, and the tax liability shall be adjusted in such manner as may be prescribed: Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.

Implication:

There could be two cases while returning time expired goods in general trade practices:

Case 1:

Goods being return before furnishing annual return of taxable person who have supplied the goods:

  • In this case goods can be returned against credit note issued by supplier. Thus, goods will be return on the basis of delivery challan and in case value of return goods being more than Rs 50000/- E way bill shall be generated accordingly.
  • In this case full ITC needs to be reversed attributable to such goods.

Case 2: Goods being return after the expiry of above period:

  • In this case such return would be treated as fresh supply.
  • Such goods shall be accompanied by tax invoice and E way bill if required.
  • Full ITC attributable to it need not to reversed
  • GST liable to be paid based on value at the time of return.

Procedure to be followed:

Case 1:

  1. As per section 34(1) of the CGST Act, the manufacturer or the wholesaler who has supplied the goods to the wholesaler or retailer, as the case may be, has the option to issue a credit note in relation to the time expired goods returned by the wholesaler or retailer, as the case may be.
  2. If the credit note is issued within the time limit specified in section 34(2) of the CGST Act, the tax liability may be adjusted by the supplier, provided the person  returning the time expired goods has either not availed the ITC or if availed has reversed the ITC so availed against the goods being returned. However, if the time limit has expired, a credit note may still be issued but the tax liability cannot be adjusted by him in his hands
  3. Further, in case they are returned beyond the time period specified and a credit note is issued, there is no requirement to declare such credit note on the common portal by the supplier as tax liability cannot be adjusted in this case.

Case 2:

  1. Person returning the time expired goods is a registered person
    • Return of goods to be treated as fresh supply
    • Value of the said goods as shown in the invoice on the basis of which the goods were supplied earlier may be taken as the value of such return supply
    • Recipient is eligible to avail Input Tax Credit on said return supply subject to section 16 of the CGST Act.
  2. Person returning the time expired goods is a composition taxpayer
    • Return the said goods by issuing a bill of supply and pay tax at the rate applicable
    • Recipient is not eligible to avail ITC of said return supply
  3. Person returning the time expired goods is an unregistered person: Recipient may return the said goods by issuing any commercial document without charging any tax.

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 availed on the return supply in terms of section 17(5) (h) of the CGST Act. However, ITC which is required to be reversed in such scenario is the ITC availed on the return supply and not the ITC that is attributable to the manufacture of such time expired goods.