Drugs & Pharmaceuticals

1: Whether formulations cleared have to be assessed to GST under transfer price mechanism or on the basis of MRP printed on them?

Answer: The assessment of drugs and formulations
under GST would be on the basis of transaction value
at each level of supply with end to end ITC chain for
neutralizing the GST paid at the procurement level.

2: What are the requirements for clearance of physician samples distributed free of cost?

Answer: In case of clearance of physician samples
distributed free of cost, the ITC availed on the said
samples has to be reversed in view of the provisions
under Section 17(5)(h) of the CGST Act, 2017. No tax is
payable on clearance of physician samples distributed
free of cost as the value of supply is zero and no credit
has been availed.

3: What is the procedure for movement of time expired medicines from the retail outlets to the manufacturer for destruction?

Answer: In such cases, the manufacturer may issue
a credit note within the time specified in sub-section
(2) of section 34 of the CGST Act, 2017 subject to
the condition that the person returning the expired
medicines reduces his ITC. Subsequently, when the
time expired goods are destroyed, the manufacturer
has to reverse his ITC on account of goods being
destroyed. Where the goods are returned after the
time limit specified in section 34(2) of the CGST Act,
2017, the registered person returning the goods shall
issue a tax invoice, as it is a supply within the meaning
of Section 7 of the CGST Act, 2017.

4: How loan and licensee units carry out their operations in GST regime?

Answer: GST law does not have any special provision
for loan and licensee units. Where the contract are in
the nature of performance of job-work, these units
can opt to follow the procedure laid down in section
143 of the CGST Act, 2017 i.e. the principal can send any
inputs etc. to such units without payment of tax and
the principal can clear the goods from the premises
of such units if the principal declares these units as his
additional place of business or where such units are
themselves registered under section 25 of CGST Act,
2017.

5: What is the treatment of clearances effected to Special Economic Zones?

Answer: The clearances effected to the SEZ are zero
rated supplies in terms of Section 16 of the IGST Act,
2017. Accordingly, the supplier can claim refund of IGST
paid on such supplies or clear the same under bond/
letter of undertaking and claim refund of the unutilised
ITC.

6: Whether SEZ unit located in a State requires a separate registration under GST?

Answer: The SEZ unit located in a State is treated as
a business vertical distinct from other units located in
the State outside the SEZ first proviso to Rule 8 of
the CGST Rules, 2017 read with Section 25 of the CGST
Act, 2017. Hence, separate registration is required to
be obtained for the unit located in SEZ.

7: Whether ISD registration is required to be obtained separately?

Answer: In terms of second proviso to Rule 8 of the
CGST Rules, 2017 read with Section 25 of the GST Act,
2017, every person being an Input Service Distributor
has to make a separate application for registration

Question 8: What is the transitional credit that can be availed on the existing stocks held by a registered person under GST, who was not required to be registered under the existing law?

Answer: In terms of Rule 117(4) of the CGST Rules,
2017 (transitional provisions) read with Section 140(3)
of the CGST Act, 2017, a registered person who was
not registered under the existing law and who is not
in possession of any document evidencing payment
of central excise duty in respect of the goods held in
stock, shall be allowed credit at the rate of sixty per
cent on such goods which attract central tax at the
rate of nine per cent or more and forty per cent for
the other goods of the central tax applicable on supply
of such goods after 01st July 2017 and the said amount
shall be credited in the electronic credit ledger after
the central tax payable on such supply has been paid.
In case where integrated tax is paid, the amount of
ITC would be at the rate of thirty per cent and twenty
per cent respectively of integrtaed tax. This facility is
available for a maximum period of 6 months from the
appointed day (i.e. upto 31st December, 2017) or till the
goods are sold out, whichever is earlier.

9: Whether a manufacturer can avail deemed credit in respect of transitional stocks on the appointed day in respect of the stocks for which duty paying document is not available?

Answer: In terms of the proviso to Section 140(3) of the
CGST Act, 2017, the manufacturer is not eligible to avail
deemed credit in respect of transitional stocks, for which
duty paying document is not available. Such credit is not
available in case of SGST except where VAT was payable
on the basis of MRP.

10: Whether deemed credit is available in respect of goods purchased from tax free zones?

Answer: The deemed credit in terms of Rule 117(4) of
the CGST Rules, 2017 (transitional provisions) read with
Section 140(3) of the CGST Act, 2017 would be available
in respect of the goods, which were not unconditionally
exempt from the whole of the duty of excise specified in
the First Schedule to the Central Excise Tariff Act, 1985
or were not nil rated in the said Schedule. As the goods
purchased from tax free zones were exempted from
duty payment under a Notification issued under Section
5 of the Central Excise Act, 1944 and not Nil rated in the
First Schedule to the Central Excise Tariff Act, 1985, the
deemed credit would be available in respect of such
goods held in stock on the appointed day.

11: What is the obligation cast on the Registered Person in case of purchases from Unregistered Person?

Answer: In terms of Section 9(4) of the CGST Act,
2017 read with Section 31(3), the Registered Person
procuring the taxable supplies from an Unregistered
Supplier has to raise invoice and pay GST on reverse
charge basis in respect of such supplies.

12: What is the treatment of supplies made from erstwhile tax free zones?

Answer: Since GST is a destination based consumption
tax with seamless transfer of ITC credit, no exemptions
are accorded to supplies made by erstwhile tax free
zones. Accordingly, the goods cleared from erstwhile
tax free zones would be subjected to GST from the
appointed day (01st July, 2017).

13: What is the effect of non-payment of consideration in respect of taxable supplies received by the recipient?

Answer:If the recipient fails to pay to the supplier
the amount towards the value of supply along with
tax payable thereon within a period of one hundred
and eighty days from the date of issue of invoice by
the supplier, 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
interest thereon. The ITC so reversed can be reclaimed
by the recipient after payment of consideration along
with tax payable there on subsequently. This provision
is not applicable in respect of deemed supplies made
without consideration in terms of Schedule I to the CGST
Act, 2017.

14: Whether separate sequence numbers can be maintained for invoices issued by the Registered Person in respect of supplies made under GST?

Answer: In terms of Rule 46(b) of the CGST Rules,
2017 single or multiple series of invoices can be raised
by the Registered Person for the supplies made under
GST as long as such invoice numbers are unique for a
financial year.

15: Which is the document required to be issued by the Registered Person for supply of goods from one premises to another premises under the same registration number?

Answer: In terms of Rule 55(1)(c) of the CGST Rules,
2017 such movements have to be effected under
the cover of a delivery challan along with any other
document that may be prescribed in lieu of the
e-way bill.

16: Whether discounts can be claimed as an abatement from the price for assessing GST?

Answer: In terms of Section 15(3) of the CGST Act, 2017,
the value of supply for charging GST shall not include
any discount which is given before or at the time of the
supply if such discount has been duly recorded in the
invoice issued in respect of such supply. The value of
supply shall also not include any discount which is given
after the supply has been effected, if such discount is
established in terms of an agreement entered into at or
before the time of such supply and specifically linked to
relevant invoices and ITC attributable to such discount
has been reversed by the recipient of the supply.

17: What are the relevant provisions for movement of transitional goods lying at the premises of contract manufacturer on or after appointed day?

Answer: The procedure for movement of transitional
goods lying at the premises of Contract Manufacturers/
Loan Licencee is governed by the provisions under
Section 141(1), (2) & (3) of the CGST Act, 2017.