GST ITC Reversal on Expired Drugs: Gujarat HC Seeks Department’s Response

The Gujarat High Court has decided to look into a case involving Eris Lifesciences Ltd., a pharmaceutical company. The company is challenging a demand that requires them to give back tax credits related to returned and expired medicines.

The notice has been issued by the bench of Justice Bhargav D. Karia and Justice Pranav Trivedi before the GST department on August 5, 2025, returnable on September 18, 2025.

A tax demand of Rs. 1.28 crore raised against the company has been contested by them for ITC claims on expired drugs returned by distributors and subsequently destroyed.

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The issue is that the interpretation and application of Section 17(5)(h) of the CGST Act, 2017, which bars ITC on goods “lost, stolen, destroyed, written off or disposed of by way of gift or free samples.” This clause has been applied by the authorities to refuse ITC on expired drugs returned to Eris, despite having originally been sold with GST duly paid.

The pharma company claimed that the returned goods (expired pharmaceutical products) had been sold in the regular course of business and were subject to output GST at the time of the original supply. Upon return, the drugs were mandatorily destroyed due to expiry, in accordance with the norms of the Central Drugs Standard Control Organisation (CDSCO).

The drugs were destroyed pursuant to the applicable legal provision, not as a voluntary act of disposal by the company. Since the credit notes for the expired goods were issued after the time limit specified under Section 34(2) of the CGST Act, the provisions of Section 17(5)(h) should not be applied retroactively.

The validity of clause (d) of Para 3(B) of Notification No. 72/46/2018-GST has been contested by the company on October 26, 2018, as being contrary to the GST Act when applied in such circumstances.

Via email, the High Court has permitted direct service of notice to expedite proceedings. The next hearing of the case will be conducted on September 18, 2025.