Impact of GST in Pharma Sector

The Model GST Law grants power to the Government to prescribe documents for consignment of goods exceeding INR 50,000 in value.

• Discounts/ incentives provided after the supply of goods will be excluded from the transaction value, provided they are known at or before the time of supply of goods, and are linked to invoices for the supply of goods. Further, discounts at the time of supply are excluded from the transaction value, only if they are in the course of normal trade practice, and are disclosed on the invoices. Discounts provided under secondary market schemes will therefore not be eligible for exclusion from the turnover.
• Supply of goods between persons without consideration is deemed to be a ‘supply’. Accordingly, stock transfer of promotion materials/ free samples will be subject to GST. Subsequent supply of the said promotion materials to stockists/ end customers will also attract GST. The valuation of such samples/ materials will be as per the GST Valuation Rules, i.e. the transaction value of goods of like kind and quality or the cost of sales.
• Stock transfers outside the State will be subject to GST.
• Notified life saving drugs / APIs used in manufacture of life saving drugs presently benefit by way of non-levy of excise duty to the extent covered under specific notifications under the central excise law. Given that the central excise duty would be subsumed under the proposed GST law, it would be relevant to ensure that the life saving drugs enjoy tax free status under GST.
• Many pharma companies have set up units in states (such as HP, Jammu and Kashmir, Sikkim etc), wherein the central and state governments have offered exemptions/incentive schemes with respect to excise and VAT taxes. These schemes are either by way of upfront exemption or by way of refund of taxes paid subject to conditions.