Distributor has inventory of expired drugs. As per the contract, the manufacturer will not accept return of expired drugs. Hence the distributor is forced to destroy. How to deal with reversal of ITC? Circular No. 72/46/2018 explains from the angle of Manufacturer, in case of return of expired drugs. but practically and genuinely there are scenarios in which drugs are not agreed upon to return once expired. The distributor can not show as sales as the same as is prohibited.
My opinion : prepare delivery challan and reverse ITC . Because as per section 17(5) of CGST Act 2017 , you can not claim ITC on items disposed off.