QUESTION

`A` is manufacturing medicines and supply physician samples to its Distributor `B` by Tax Invoice with applicable GST. Distributor `B` is not claiming ITC on physician Samples received from Company `A` and reverse ITC of all such purchases of samples. Now Distributor wants to written back Expiry/Breakage goods of such physician samples to Company `A` Please advise for GST applicability. Whether `B` can raise commercial Debit Note without charging GST? Also advise for Breakage and expiry goods other than Physician Samples.

ANSWER

Facts of the case: Company `A` is manufacturing medicines and supply physician samples to its Distributor `B` by Tax Invoice with applicable GST. Distributor `B` is not claiming ITC on physician Samples received from Company `A` and reverse ITC of all such purchases of samples. Now Distributor wants to write back Expiry/Breakage goods of such physician samples to Company `A`. Whether `B` can raise commercial Debit Note without charging GST?

Reply: If B is raising commercial debit note then it will be subjected to GST because it will be considered as service under Clause 5(e) of Schedule II of CGST Act. As per section 34 of CGST Act Debit note or Credit note for the supply already done can be issued only by the Supplier. Since it is a transaction corresponding to supply already done, therefore A can issue credit note.

Now there are 2 possibilities:
CASE1. : The time limit for issue of credit note as per section 34 has expired:
If the time limit for issue of credit note as per Section 34 has expired, then A should issue commercial credit note. Since GST is charged at the time of supply and adjustment of tax against credit note is not availed, there will be no need to reverse ITC under Rule 42/43.

CASE2. : The time limit for issue of credit note as per section 34 has not expired:
In this case, A can issue credit note with GST and reduce GST liability through GSTR-3B and in this case A has to reverse ITC under Rule 42/43. (Reply dt. 15/07/2021)