This circular provides clarification on the procedure to be followed under GST for return of time-expired drugs or medicines from retailers or wholesalers to manufacturers, in order to ensure uniform implementation across the supply chain.

It explains that time-expired drugs may be returned following either of two methods. Under the first option, the return may be treated as a fresh supply. A registered person (other than a composition taxpayer) may issue a tax invoice treating the return as a fresh supply, and the recipient may avail input tax credit (ITC) subject to normal conditions. Composition taxpayers may return such goods by issuing a bill of supply and paying tax at the applicable composition rate, without ITC to the recipient. Unregistered persons may return goods using any commercial document without charging tax. Where such returned goods are destroyed by the manufacturer, ITC availed on the return supply must be reversed.

Alternatively, the supplier may issue a credit note under section 34 of the CGST Act. In this case, goods may be returned under a delivery challan. If the credit note is issued within the prescribed time limit, the supplier may adjust tax liability subject to reversal or non-availment of ITC by the recipient. Where the time limit has expired, a credit note may still be issued but tax liability cannot be adjusted and the credit note need not be reported on the portal. If returned goods are destroyed, the manufacturer must reverse ITC attributable to their manufacture.

The circular also clarifies that these principles apply to returns of goods for reasons other than expiry as well.