Delivery challan under GST: when to use one instead of a tax invoice

A delivery challan lets goods move without a tax invoice, but only in the situations listed in Rule 55 of the CGST Rules: goods sent for job work, goods sent for reasons other than supply such as approval or exhibition, liquid gas where the quantity is not known at removal, goods sent in multiple lots against one invoice, and notified cases like art works. For an ordinary sale, the invoice must travel with the goods. This guide covers each case, the format, copies, e-way bill rules and how a challan becomes an invoice.

What a delivery challan is, and what it is not

Under Section 31 of the CGST Act, a registered person supplying goods must issue a tax invoice before or at the time of removal. The invoice is the document that creates the tax liability and carries the buyer's input tax credit. A delivery challan is different: it is a transport and custody document that says "these goods have left my premises and here is where they are going", without a sale having taken place, or before the invoice can be finalised.

The distinction matters at a road check. Section 68 requires the person in charge of a vehicle to carry the prescribed documents, and Section 129 allows detention of goods moving without them, with a penalty of 200% of the tax where the owner comes forward. A challan used where an invoice was required is not "the prescribed document", so the movement is treated as unaccounted. Use challans only where Rule 55 permits them.

The Rule 55 cases, one by one

Rule 55(1) allows a delivery challan at the time of removal in these situations.

Supply of liquid gas where the quantity at removal is not known. A distributor sends a tanker of LPG or industrial gas; the exact quantity is measured at the customer's end. The challan goes with the tanker, and the invoice is issued once the delivered quantity is known.

Transportation of goods for job work. The most common case for small manufacturers. Grey fabric to a dyer, castings to a machining shop, garments to an embroidery unit, printed sheets to a binder. The principal sends inputs or capital goods on a challan under Section 143, and no tax is charged because there is no supply. The job worker returns the goods on a challan of their own (or by endorsing the principal's) and invoices only the job work charges.

Transportation of goods for reasons other than by way of supply. This covers a wide range: goods sent on approval or sale-or-return basis; goods sent to an exhibition or trade fair; goods sent for repair, testing or calibration; stock moved between two branches under the same GSTIN in the same state; goods sent for weighment; and goods returned after repair. In every case the test is that no sale has happened yet.

Such other supplies as notified. Circular 22/22/2017 allows artists to send art works to galleries on a delivery challan, with the invoice issued only when a piece is sold. Circular 108/27/2019 clarified that goods sent out of the state for exhibitions or on consignment are not a supply and move on a challan, with the invoice issued at the time of actual sale.

Two more sub-rules extend the list:

Rule 55(5): goods sent in semi-knocked-down or completely-knocked-down condition, or in batches or lots. A furniture maker shipping one order in three trucks issues the complete invoice before the first truck leaves, and a delivery challan for each truck referring to that invoice. Each truck carries its challan and a certified copy of the invoice; the original invoice goes with the last consignment.

Rule 55(4): where goods are transported on a challan in lieu of an invoice, the supplier must issue the tax invoice after delivery. This is the legal hook for challan-to-invoice conversion.

Sending goods on approval has its own time limit in Section 31(7): the invoice must be issued at the time of supply or six months from removal, whichever is earlier. Goods still with the buyer after six months are treated as supplied and must be invoiced.

What the challan must contain

Rule 55(1) lists the contents. They overlap with a tax invoice but with one important difference: tax appears only where the movement is for a supply.

Add a few practical fields that the rule does not demand but every check post expects: the purpose of the movement ("for job work", "on approval", "own use, branch transfer"), the vehicle number, the number of packages, and the reference number of the related invoice or job order. Mark the document clearly as "Delivery challan" so nobody mistakes it for an invoice.

Give challans their own numbering series (DC/26-27/0001), never a number from your invoice series. The invoice numbering rules apply equally to challans: consecutive, no gaps, restarted each financial year.

Three copies, and who keeps which

Rule 55(2) requires the challan in triplicate, each copy marked:

• Original for consignee, which the receiving party keeps as proof of what was received.
• Duplicate for transporter, which travels in the vehicle and is shown at any check.
• Triplicate for consigner, your own record, ideally signed by the receiver on delivery.

A PDF sent by WhatsApp serves for the consignee and your own file, but the transporter copy should be printed and in the vehicle unless an e-way bill covers the movement. Get the consignee's signature and stamp on the returned copy; for job work it is your evidence of the date the goods went out, which starts the one-year clock.

With or without an e-way bill

The e-way bill rules apply to movement of goods, not to invoices, so a challan movement needs an e-way bill on the same terms as a sale. Under Rule 138, an e-way bill is required for a consignment valued above ₹50,000. The value for a challan movement is the taxable value of the goods shown on the challan. Rule 55(3) says that when a challan is issued in lieu of an invoice, the movement must be declared in the e-way bill form, which in practice means selecting the correct document type ("Delivery challan") and sub-type (job work, own use, exhibition, line sales, recipient not known, and so on) on the portal.

Two special cases:

• Inter-state job work. The proviso to Rule 138(1) requires an e-way bill whenever a principal sends goods to a job worker in another state, whatever the value. Either the principal or the registered job worker can generate it.
• Intra-state relaxations. Several states have exempted or raised the limit for intra-state movement of particular goods or particular purposes, and some exempt movement within a city. These notifications change; check your state's e-way bill notification rather than relying on a general rule.

Where no e-way bill is required (below ₹50,000, or an exempt category), Rule 55A still requires the vehicle to carry the invoice, bill of supply or delivery challan. The detailed mechanics of validity and generation are in the e-way bill guide.

Converting a challan into an invoice

The conversion depends on why the goods moved.

Goods sent in lots. The invoice already exists; the challans reference it. There is nothing to convert, but the invoice should list the challan numbers so the full quantity can be traced across trucks.

Goods sent on approval, exhibition or consignment. When the buyer accepts the goods, or a piece sells at the gallery, issue a tax invoice for the accepted quantity, referencing the challan. Goods not accepted come back on a return challan, or on the same challan endorsed by the receiver with the returned quantity. The invoice date is the date of acceptance, and that is the month the GST is due.

Liquid gas. Invoice the measured quantity after delivery, referencing the challan and the provisional quantity.

Job work. Two documents close the loop. The job worker sends the processed goods back on a challan (their own, or the principal's endorsed) and issues a tax invoice for the job work charges only. The principal never invoices the job worker for the inputs, because no supply took place. If the principal instead sells the finished goods directly from the job worker's premises, the principal issues the sale invoice to the end customer from there, which is allowed if the job worker is registered or the principal has declared the job worker's premises as an additional place of business.

Whichever case applies, the invoice must satisfy every field in Rule 46, listed in how to make a GST invoice. Carry over the description, HSN and quantity from the challan and add the tax lines.

Job work: the one-year and three-year rules

Section 143 lets a registered principal send inputs, semi-finished goods or capital goods to a job worker without paying tax, provided the goods come back or are supplied onward within the time limit:

If the goods are not back in time, Section 143(3) and (4) deem them to have been supplied by the principal to the job worker on the day they were originally sent. The principal then owes tax on that deemed supply, with interest from the original date, which for a year-old movement is a painful number. Track every challan against its return.

Rule 45 requires the principal to issue the challan even when goods go straight from the supplier to the job worker, and to report all movements in Form ITC-04. Since October 2021, ITC-04 is half-yearly for principals with turnover above ₹5 crore (by 25 October and 25 April) and annual for everyone else (by 25 April). Circular 38/12/2018 sets out how goods can move from one job worker to another on the same challan, endorsed at each step. Scrap generated at the job worker's end can be supplied by the job worker directly if registered, or by the principal if not.

The principal can claim ITC on the inputs and capital goods sent for job work under Section 19, even though they never physically enter the principal's premises, subject to the usual conditions in the ITC guide.

Worked example: a Surat textile job worker

Mahavir Dyeing in Surat is a registered job worker that dyes and prints grey fabric for traders. On 3 July 2026, Rangoli Textiles, a Surat trader, sends 5,000 metres of grey polyester fabric (HSN 5407) valued at ₹50 per metre for printing.

The principal's challan. Rangoli issues delivery challan DC/26-27/0112 dated 3 July 2026: consigner Rangoli Textiles with GSTIN, consignee Mahavir Dyeing with GSTIN, HSN 5407, description "Grey polyester fabric for job work (printing)", quantity 5,000 MTR, taxable value ₹2,50,000, no tax (movement for job work, not a supply), purpose "job work", vehicle number. Three copies; the transporter copy travels with the goods. Because the consignment is worth more than ₹50,000, Rangoli generates an e-way bill against the challan with sub-type "job work", unless Gujarat's intra-state notification exempts the movement; Rangoli checks the current notification before every dispatch.

At Mahavir's end. Mahavir records the inward challan in a job register with the date received, so the return can be tracked, and issues an internal job card for the printing order.

Return of processed goods. On 18 July, Mahavir returns 4,960 metres of printed fabric (40 metres lost as process wastage, which is normal and recorded). Mahavir issues its own challan DC/26-27/0287 referencing Rangoli's DC/26-27/0112, showing 4,960 MTR, HSN 5407, taxable value ₹2,50,000 (the principal's value, since Mahavir does not own the goods), no tax, purpose "return after job work". A fresh e-way bill accompanies the return movement.

The job work invoice. Alongside, Mahavir raises tax invoice INV/26-27/0142 for the printing charges only. Textile job work services are covered under SAC 9988; the rate for job work on textiles has been 5%, but confirm the current rate on the schedule after the September 2025 rationalisation.

Rangoli pays ₹63,000, claims ITC of ₹3,000, and its fabric worth ₹2,50,000 is back home within 15 days, well inside the one-year limit. Rangoli then sells the printed fabric on a normal tax invoice. In the next ITC-04, Rangoli reports 5,000 metres sent and 4,960 metres received back against challan DC/26-27/0112.

Had Rangoli instead asked Mahavir to send the printed fabric directly to a buyer in Mumbai, Rangoli would issue the sale invoice to the Mumbai buyer with IGST, Mahavir's return challan would name the Mumbai buyer as consignee with Rangoli as the supplier on the e-way bill, and the goods would count as "supplied from the job worker's premises" for the Section 143 deadline.

Common mistakes with delivery challans

1. Using a challan for a normal sale because the customer "will confirm the quantity later". Section 129 detention and a 200% penalty are the risk.
2. Skipping the e-way bill on a job work movement above ₹50,000, or on any inter-state job work movement.
3. No taxable value on the challan. Officers need it to check whether an e-way bill was required; leaving it blank or writing ₹0 invites a query.
4. Numbering challans in the invoice series. Gaps in the invoice series and a GSTR-1 that does not match.
5. Forgetting the return. Inputs that have sat with a job worker for a year become a deemed supply with interest. Keep a register of open challans and review it monthly.
6. Not filing ITC-04. It is easy to miss because it is half-yearly or annual, and the department uses it to check the one-year rule.
7. Job worker charging tax on the goods instead of only the job work charges, or the principal "selling" inputs to the job worker to keep things simple. Both distort ITC and the job worker's turnover.
8. Approval goods invoiced after six months. Section 31(7) fixes the outer limit; set a reminder at five months.

How VyaparKit helps

The delivery challan tool creates challans in their own financial-year series with the Rule 55 fields, a purpose line, vehicle number and copy markings, and converts a challan into a tax invoice when the goods are accepted or the job is billed, carrying over the items and HSN codes. The GST invoice tool then applies the right tax split from the place of supply. A job card records each job work order at the job worker's end, and a packing list helps when one order moves in several lots. VyaparKit does not generate e-way bills, so those are still made on the e-way bill portal against the challan number.

Next steps

• List the reasons your goods move without a sale (job work, approval, repairs, branch transfer) and confirm each is a Rule 55 case.
• Start a separate challan series for FY 2026-27 with a purpose line and taxable value on every challan.
• Keep a register of open job work challans with the date sent and the one-year deadline, and review it monthly.
• Check your state's e-way bill notification for intra-state relaxations, and generate an e-way bill for every movement above ₹50,000 unless clearly exempt.
• Diarise ITC-04 (25 April, and 25 October if your turnover is above ₹5 crore).