Summary
A distributor's margin on each carton is small, and its stock has a fixed life. Expired stock is written off against that margin. A batch that cannot be traced to its buyers puts the drug or food licence at risk. Four disciplines keep both under control: record the batch and expiry when goods are received, pick the earliest expiry first, act on stock expiring in the next 90 days while it can still be sold or returned, and handle returns and recalls by batch.
01What the law expects
Drug distributors
Rule 65 of the Drugs and Cosmetics Rules, 1945 sets the conditions of retail and wholesale sale licences. Among them, the licensee keeps records of purchases and sales that show the name of the drug, the batch number and the manufacturer, and does not sell or stock for sale any drug past its expiry date. State drug control authorities inspect these records.
Food distributors
Under the Food Safety and Standards (Food Recall Procedure) Regulations, 2017, food businesses engaged in manufacture, import or wholesale supply must have a recall plan and must be able to identify where a recalled product has gone. A wholesaler that cannot say which customers received a batch cannot carry out a recall. Separately, the Food Safety and Standards (Labelling and Display) Regulations, 2020 require pre-packaged food to carry a "use by" or expiry date, and food past that date may not be sold.
GST on expired and returned goods.
- Input tax credit on goods written off, lost or destroyed must be reversed under Section 17(5)(h) of the CGST Act.
- CBIC Circular No. 72/46/2018-GST explains the two ways time-expired goods returned to the manufacturer can be treated: as a fresh supply by the distributor, on a tax invoice, or against a credit note issued by the manufacturer under Section 34. A credit note under Section 34 must be declared by 30 November after the end of the financial year of the original supply, or the date of the annual return if earlier. Where the return is a fresh supply and the manufacturer later destroys the goods, it is the manufacturer who reverses credit.
02What expiry costs, worked through
Take a distributor with ₹50 crore of annual sales and expiry write-offs of 1 percent of sales, or ₹50 lakh a year. Halving write-offs to 0.5 percent saves ₹25 lakh. At a gross margin of 10 percent, that equals the margin on ₹2.5 crore of extra sales. The 1 percent, 0.5 percent and 10 percent are assumptions; use your own figures.
03Valuing near-expiry stock
Under AS 2 and Ind AS 2, inventory is carried at the lower of cost and net realisable value. Stock that can be sold only at a discount, or returned to the manufacturer only with a deduction, has a net realisable value below cost, and must be written down when that becomes clear. Expiry therefore reaches the profit and loss before the stock actually expires. A weekly expiry view is also the evidence for the write-down.
04Where expiry losses come from
Batches not recorded at receipt
If the goods receipt records only the item and quantity, the batch and expiry exist only on the carton. Pickers then take whatever is nearest, and the oldest stock sits at the back until it expires.
Picking without a rule
First in, first out is the usual instruction, but it is the wrong one for goods with a shelf life. A later delivery can carry an earlier expiry date. The rule that protects margin is first expiry, first out (FEFO).
Short-expiry stock noticed too late
Manufacturers' policies on taking back near-expiry and expired stock vary, and usually carry a cut-off and a deduction. A retailer offered goods with little life left can refuse them, and hospital and government buyers often require a minimum remaining shelf life at the time of supply. A distributor that notices a batch with 30 days left has lost both options.
Returns not tied to a batch
A chemist returns three strips. Unless the return names the batch, the distributor cannot send the expiry claim to the right manufacturer, and its stock by batch no longer agrees with the shelf.
05A routine that keeps write-offs low
- Batch, manufacturing date and expiry recorded at receipt for every line, with the MRP where it applies. Where the item has a fixed shelf life, expiry can be calculated from the manufacturing date.
- FEFO at dispatch. Stock leaves from the batch with the earliest expiry. A picker who takes a different batch records which one.
- A weekly expiry review of everything expiring in the next 90 days, by place and value:
| Days to expiry | Action |
|---|---|
| 61 to 90 | Push through the sales team; offer to customers who buy the item in volume |
| 31 to 60 | Scheme or price offer approved by the owner; check the manufacturer's return policy cut-off |
| 0 to 30 | Return to the manufacturer where accepted; otherwise move to the expired area |
| Expired | Off the saleable shelf the same day. Returned to the manufacturer where accepted; otherwise written off with the reason and the input tax credit reversed |
- Every customer return recorded by batch, checked against what was sold to that customer.
- Recall drill once a year. Pick a batch, find every customer who received it from the delivery records and time how long it takes.
06Measures worth tracking
- Expiry write-off as a share of sales,
- monthly, by manufacturer.
- Stock with under 90 days of life,
- by value, every week.
- Expiry returns to manufacturers not yet credited,
- by value and age, where your system records them.
- Days of stock by item,
- so purchase quantities are set from sales, with the manufacturer's scheme as one input.
07How MatruOS runs it
Batch and expiry at receipt
A goods receipt records the batch, manufacturing date, expiry date and MRP for each line. Where an item has a shelf life set, the expiry is worked out from the manufacturing date.
Earliest expiry first
When goods leave stock, MatruOS takes them from the earliest-expiring batch, and each stock movement records the batch and the delivery it went on.
Expiry report
The stock reports include an expiry view: every batch expiring within the number of days chosen, by place, with quantity and MRP, and batches already past expiry marked as expired.
Write-offs recorded as wastage
A stock correction for expired or damaged goods is recorded as wastage at that place, with the reason noted.
Returns back into their batch
Goods returned against an invoice on a credit note come back into the batch they were sold from.
Not covered yet for pharma
MatruOS sale bills do not yet print the batch, expiry, manufacturer and both parties' drug licence numbers that Rule 65(5) of the Drugs Rules requires on a wholesale memo. This is being built. Until it is live, a pharma distributor needs these on its bill from another source. We build what your business needs, free, on every plan.
AI can make mistakes. Check batch and expiry details against the goods before confirming a receipt.
Sources
Checked 31 October 2026.
- Drugs and Cosmetics Act, 1940 and Rules, 1945 (CDSCO)
- Food Safety and Standards (Food Recall Procedure) Regulations, 2017 and (Labelling and Display) Regulations, 2020 (FSSAI)
- CBIC Circular No. 72/46/2018-GST, 26 October 2018: return of time-expired goods
- AS 2 and Ind AS 2, Inventories
- Central Goods and Services Tax Act, 2017: Sections 17(5)(h) and 34.