Currently, the investigation has been done by the tax officials under which the officials have observed that the pharmaceutical companies have claimed the input tax credit (ITC) for free samples being offered by them as a promotional activity. The tax officials sent the notification to the drug manufacturers that now the pharmaceutical companies have to return or reverse the amount of claim of the input tax credit to the tax department.
GST, which is touted to be the one-nation, one- tax is influencing the geographic boundaries of the country for the business enterprises. The new regime comes with new hope in terms of tax disputes.
If any of the revenue loss incurred within the manufacturing industry in the country then the pharmaceutical companies are liable for this. One of the heads of the pharmaceutical company stated that the drug companies have been adversely affected with this. “It must have been decided to open up investigations in Kanpur, so most cases are here”, said the head of a Pharmaceutical Company.
The Mumbai- based, Indian Pharmaceutical Alliance (IPA) requested to the government with the whole discussion or details in the previous month. IPA is one of the famous research-based National Pharmaceutical Companies including Sun Pharmaceutical Industries, Cipla and Lupin.
DG Shah, Secretary-General of IPA, said “The law is clear. The government has clarified the provision of law through the FAQ. All doubts are removed. In spite of such clarity, when inspectors summon industry and start harassing them, the government ends up inviting the wrath and frustration of the industry. It is a pity the government is unable to claim credit for its reforms,” said DG Shah, secretary-general, IPA.
The current investigation being conducted by the tax department is relating to the free sample by drug companies. Free samples like buying one and get free and additional qualities at a similar price play significant as marketing activities for industries like pharma, FMCG, food chains and retailers. Under the GST ambit, these companies are entitled to return or reverse the claim amount of input tax credit collected by them previously on free samples.
The GST Law Review Committee had said in a report the total consideration paid for such goods should be chargeable to GST and input tax credit should not be denied in such cases, but the issue is yet to be taken up by the GST Council, the apex decision-making body for the tax regime that subsumed central and state indirect taxes.
The GST Council has decided the meeting on 22nd December but it is not confirmed whether the pharmaceutical companies issue will be solved by the tax officials or not.
Sumit Lunker, Indirect Tax, Partner at PwC, said. “The issue of discounts or incentives offered under various trade schemes is relevant for various sectors, including FMCG and consumer durables, in addition to the pharma industry.”
“We understand the issue is being examined by CBIC (Central Board of Indirect Taxes and Customs) and a detailed circular/clarification may be issued in consultation with the GST Council. It might be better to keep these investigations on hold in the interim.”
