Provisions of GST on Drug and Pharmaceutical Industry

India has a tryst with growth, be it in any industry. India's pharmaceutical industry constitutes 20% of the volume of that of the world, making it the third largest in the world in terms of volume. India's growth in this sector, in the years to come, is projected to be much more than the global growth. In this article, we will focus on certain provisions of the nationwide single tax system, in relation to drugs and pharmaceuticals industry.

GST Registration

The general rules on GST registration makes it clear that businesses whose turnover is above 20 lakhs must register themselves. Hence, most drug and pharmaceutical manufacturers would have to obtain GST registration. Also, in addition to GST registraiton, FSSAI registration maybe required for drug and pharmaceutical manufacturers involved in the manufacturing of health supplements or neutraceuticals.

Input Tax Credit

The assessment of drugs and formulations will be based on the transaction value at each level of supply. Input tax credit can be claimed on an end-to-end basis, which helps drug and pharmaceutical manufacturers in neutralizing the GST paid at the procurement level.

Return of Goods

On return of the expired goods to the manufacturer, the manufacturer provides a credit note to the recipient of goods, provided that the recipient reduces his Input Tax Credit. Subsequently, the manufacturer has to reverse his ITC when the goods are ultimately destroyed. While returning those goods to the manufacturer, the recipient must issue a tax invoice, as the transaction is considered as supply as per Section 7 of the CGST Act, 2017.

Loan and Licensee Units

GST has no specific provisions for loan and licensee units. The principal can supply goods to these units without any consideration of tax. The principal may also clear those goods from the premises of those units if the principal declares such units as his additional place of business.

Clearances effected to Special Economic Zones

The clearances effected to Special Economic Zones are zero rated supplies, and hence the supplier can claim Input Tax Credit on IGST paid for the same.

Separate Registration for Special Economic Zones

SEZ units in a state are considered distinct from other units of the state which doesn't come under the purview of SEZ. For example, XYZ may have 4 units in a state, out of which two of them are SEZ units. These two units needs to registered separately.

Deemed Credit

The deemed credit would be available to those goods which were not unconditionally exempt from the whole of the duty of excise, or were not nil rated (goods purchased from tax-free zones).

Purchase from Unregistered Person

If the recipient receives supply from an unregistered person, he would then be liable to pay taxes for those goods or services under reverse charge mechanism.

Erstwhile Tax free Zones

As GST is a destination based tax system, supplies made to erstwhile tax free zones will be chargeable under GST, with the provision of Input Tax Credit.

Payment of Consideration

If the recipient hasn't payed the consideration within a period of 180 days from the date of issue of the invoice, the amount of input tax credit availed proportionate to the amount of consideration not paid would be added to his output tax liability along with the interest thereon. The ITC so reversed can be reclaimed by the recipient after payment of consideration as well as the tax payable thereon. This provision is applicable to supplies with consideration.

For details on GST rates and HSN codes for pharmaceuticals and medicines, please click here.