Druggists and chemists across the country have been advised by their industry body, All India Organisation of Drugs and Chemists (AIOCD), to return excess stock purchased prior to September 30, 2016 and destock by March 31, 2017. This is the excess that is usually returned by the pharmacy to the manufacturer.
AIOCD says in the absence of clarity on Goods and Services Tax (GST) on near-expiry goods, members may lose out on refunds. The organisation also fears that retail chemists and semi-wholesale dealers won’t be able to claim input tax credit on such stock, as per current GST draft rules.
As per GST rules, there are provisions to claim input tax credit on the stocks of every dealer. However, there are conditions to be met. One of the conditions is that stocks should have been purchased within six months of implementation of GST i.e. if GST is implemented on April 1, 2017, then the stock purchased on or before September 30, 2016 is not eligible for input tax credit.
AIOCD letter to its members dated December 1, 2016
Currently, chemists get hundred percent reimbursement on products returned to pharmaceutical companies, either due to expiry or breakage, Suresh Gupta, honorary general secretary of AIOCD said. “This is not the last communication. Maybe after a few days, one week, fifteen days or one month the scenario may change, then we may send another communication,” he adds.
That may well be the case since the premise of the association’s letter assumes April 1, 2017 as the date of implementation of the GST. Pratik Shah, an indirect tax partner at consultancy group SKP points out that any delay in the rollout of the indirect tax regime, will call for a revision of this strategy. Besides, if the government fails to provide the desired clarity on the GST implementation date, such inventory overhaul may need to be done several times, he adds.
GST will be implemented either on April 1, 2017 or may be after April 1. The government has not clarified the details. But it is our duty to advise our members; we have more than eight lakh members across India. Nearly 37 percent of the members don’t do bank transactions or have sales tax registration; it will be difficult for them to claim tax credit. The communication to members is after consultation with our experts, and whatever advice we received from the experts, we have circulated it to our members.
Suresh Gupta, Honorary General Secretary, AIOCD
The AIOCD letter has also advised retail chemists to return expired and near-expiry stocks to wholesalers on or before December 31, 2016 but not later than January 15, 2017. The AIOCD’s fears stem from the ‘past experiences of 2005’ when the majority of chemists and druggists could not get a refund from the government for value added tax (VAT) difference on closing stocks, according to the letter.