Key Highlights of Circular No. 72/46/2018

2025-03-03 08:40:57 02March

02March

Key Highlights of Circular No. 72/46/2018 - GST

<h2>1. Understanding Time-Expired Goods in the Pharma Sector</h2><ul><li>In the pharmaceutical industry, drugs and medicines have an expiry date.</li><li>Once these goods expire, they are typically returned through the supply chain from retailers to wholesalers and finally back to the manufacturers.</li><li>The circular clarifies two methods for handling such returns under GST.</li></ul><hr><h2>2. Method 1: Treating Return of Expired Goods as Fresh Supply</h2>If expired goods are returned by a registered person, they can treat it as a new supply and issue an invoice.<h3>Process for Different Taxpayer Categories:</h3><ol><li>Regular Taxpayer (other than composition dealer):<ul><li>Issues a fresh invoice for the return.</li><li>The recipient (wholesaler/manufacturer) can claim ITC on this return.</li></ul></li><li>Composition Taxpayer:<ul><li>Issues a bill of supply instead of an invoice.</li><li>The recipient cannot claim ITC.</li></ul></li><li>Unregistered Person (Retailer/Customer):<ul><li>Can return the goods using a commercial document without charging tax.</li></ul></li><li>Manufacturer Destroying Expired Goods:<ul><li>If the manufacturer destroys expired goods, they must reverse ITC on the return supply as per Section 17(5)(h) of the CGST Act.</li><li>Example:<ul><li>If a manufacturer originally availed ITC of ₹10 while manufacturing a medicine but received ₹15 as ITC on the returned goods, the manufacturer must reverse ₹15 when destroying the expired medicines.</li></ul></li></ul></li></ol><hr><h2>3. Method 2: Returning Expired Goods Using a Credit Note</h2>Instead of treating the return as fresh supply, suppliers can issue a credit note.<h3>Key Rules for Credit Notes:</h3><ol><li>If returned within the financial year limit (as per Section 34(2) of CGST Act):<ul><li>The supplier can adjust tax liability.</li><li>The recipient must reverse ITC if already claimed.</li></ul></li><li>If returned after the financial year limit:<ul><li>The supplier can still issue a credit note.</li><li>However, tax liability cannot be adjusted.</li><li>No need to upload the credit note on the GST portal.</li></ul></li><li>Manufacturer Destroying Expired Goods:<ul><li>If the goods are destroyed after return, the manufacturer must reverse ITC related to production of the goods instead of ITC claimed on return.</li></ul></li></ol><h3>Example Scenarios:</h3><figure class="table"><table><thead><tr><th>Date of Supply</th><th>Date of Return</th><th>Credit Note Treatment</th></tr></thead><tbody><tr><td>1st July 2017</td><td>20th Sept 2018</td><td>Credit note issued & uploaded; tax liability adjusted.</td></tr><tr><td>1st July 2017</td><td>20th Oct 2018</td><td>Credit note issued, but no upload required; tax liability NOT adjusted.</td></tr></tbody></table></figure><hr><h2>4. Applicability Beyond Expired Goods</h2><ul><li>While the circular primarily addresses expired goods, the same principles apply to returns due to other reasons, such as damage or defects.</li></ul><hr><h2>5. Trade Notices & Implementation</h2><ul><li>CBIC directs tax authorities to issue trade notices for awareness.</li><li>Any issues in implementation should be reported to CBIC.<a href="https://cms.plasament.com/storage/shubham-pathak/circular-no-72-new.pdf">circular-no-72_new</a>  </li></ul>