FMCG and pharmaceutical businesses could receive input tax credit relief on specified expired goods requiring destruction under proposals reportedly being considered for the 57th GST Council’s October 8 meeting. The measure would address a recurring issue in businesses where products have a limited shelf life.
The reported reform concerns the treatment of tax credit when genuine business inventory becomes unsaleable. It is not an announcement allowing expired medicines or food products to be sold, and would operate independently of product safety and disposal requirements.
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Section 17(5)(h) of the CGST Act blocks credit in respect of goods lost, stolen, destroyed, written off or disposed of as gifts or free samples. However, expiry, return to a supplier and eventual destruction are different events, and the applicable credit treatment cannot be reduced to a single rule for every transaction.
CBIC Circular No. 72/46/2018-GST explains alternative routes for returning time-expired medicines. Where a registered dealer treats the return as a fresh taxable supply, the manufacturer may take eligible credit on that return supply; if the returned medicines are then destroyed, the circular requires reversal of that return-supply credit. A return through a credit note involves a different adjustment mechanism.
In commercial terms, allowing credit to survive qualifying destruction could reduce the additional tax cost attached to unavoidable stock expiry. The potential benefit would depend on which credit is protected, who in the distribution chain claims it, and whether the original supply has already been adjusted.
Batch records, return invoices, credit notes and disposal evidence would be logical safeguards for such a reform, although the final documentation requirements have not been confirmed. The Council’s eventual recommendations will also need to distinguish expired stock from theft, unexplained shortages and other write-offs.
Until the relevant law or implementing instrument changes, businesses cannot treat a reported proposal as permission to stop reversals currently required.
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