Many drug makers are worried that they may end up paying goods and services tax (GST) on medicines on which they have already paid earlier taxes like excise and sales tax.

Under the current law, pharmaceutical companies that have stock lying with them that is older than 12 months are not entitled to a set off against GST liability. This means they will have to pay GST on all stocks after June 30, 2018, whether excise and sales tax have already been paid on them or not.

This could lead to many pharma companies that have substantial stock of drugs and ointments — with expiry dates of more than 12 months — on which excise, sales tax or any other erstwhile tax are already paid facing double taxation, industry trackers said.

“There is a case of tax cascading for pharma companies as excise and other taxes have already been paid on the transitional stock that is lying in the depots,” said Abhishek A Rastogi, partner at law firm Khaitan & Co. “When old stock of more than 12 months is cleared, GST becomes payable without any corresponding credit due to statutory restrictions,” said Abhishek A Rastogi, partner, Khaitan & Co.

Under GST there is concept of transitional credit wherein taxes paid under the old regime can be set off against the GST liability. However, this would not be possible on all the stocks that are older than 12 months old.

Many pharma companies are looking to approach the court in this regard, said people in the know.

“Whatever is an opening stock up to 31st March, traders were told to declare ‘C’ form liabilities post which they can claim the transitional credit,” head of a well-known pharma company said on condition of anonymity. “So there is confusion whether we are supposed to claim (credit) it or not.”

Industry trackers said all states have separate C forms. A dealer purchaser issues C form to a seller at the time of an interstate purchase so that it attracts low sales tax.

“So we are told that we can claim transition credit only if we clear the C form liabilities,” the pharma company head said. “We are bearing the burden because we are financially secure, but the liabilities that have to be cleared runs in crores and would differ for every company.”

Industry trackers said that in some cases pharma companies don’t have corresponding invoices of goods they purchased from their vendors. Before GST, there was no invoice matching, which lead to a situation where vendors were not required to give precise invoices, say experts.

This is however changing post GST. EThad on June 30 reported that pharma companies have been telling their vendors that until they are GST-compliant they won’t be paid. Some pharma companies have communicated this recently in writing and said they could even alter written contracts.

Source : The Economic Times

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