Delivery Challan vs. Tax Invoice

Quick answer: Issue a tax invoice when a taxable supply takes place. Issue a delivery challan when goods move without a sale, or the sale is not complete at removal, such as job work, supply on approval or a stock transfer. Where an e-way bill is needed, it is generated against whichever document applies.

Goods leave your premises for many reasons. Sometimes you are selling them. Sometimes you are sending them to a job worker for processing, to a customer on approval, to your own branch, or out with a sales van that will sell along the route. GST treats these differently, and the document you issue should reflect what is actually happening.

The rule of thumb: a tax invoice is for a supply; a delivery challan is for movement that is not (yet) a supply, or where the invoice cannot be issued at the time of removal.

The legal basis in brief

• Tax invoice: Section 31 of the CGST Act and Rule 46 of the CGST Rules, 2017.
• Delivery challan: Rule 55 of the CGST Rules, 2017.

Rule 55 allows a delivery challan to be issued, instead of an invoice, at the time of removal of goods in specified cases. The main ones are:

• Supply of liquid gas where the quantity at the time of removal is not known
• Transportation of goods for job work
• Transportation of goods for reasons other than by way of supply
• Other supplies as may be notified (such as goods sent on approval)

The rule also covers goods moved in semi-knocked down (SKD) or completely knocked down (CKD) condition in several lots, where the full invoice is issued before the first consignment and each lot moves with a delivery challan.

Side-by-side comparison

Note: A stock transfer to a branch in another state is generally treated as a supply between distinct persons (different GSTINs), so it usually needs a tax invoice, not just a challan. Within the same state and same GSTIN, a delivery challan is typical. Confirm the treatment for your situation.

What a delivery challan should contain

Rule 55 lists the particulars. In practical terms, your challan should have:

• Date and number (consecutive, unique series not exceeding 16 characters)
• Name, address and GSTIN of the consignor
• Name, address and GSTIN (or UIN) of the consignee, if registered
• HSN code and description of goods
• Quantity (provisional where exact quantity is not known)
• Taxable value
• Tax rate and tax amount — where the transportation is for supply to the consignee
• Place of supply, in the case of inter-state movement
• Signature

Many businesses print "Not a tax invoice" or the purpose (for example, "Sent for job work") on the challan to avoid confusion at the receiving end.

Example (illustrative): job work and final sale

A Ludhiana hosiery unit sends 2,000 kg of yarn to a job worker in Tiruppur for knitting. Later, it sells the finished fabric to a garment exporter in Mumbai.

Movement 1 — yarn to the job worker (Punjab → Tamil Nadu)

Movement 2 — fabric back from the job worker

The job worker returns the knitted fabric to Ludhiana. This return movement is also covered by a challan, and an e-way bill is needed where the conditions apply. Our article on e-way bill rules for job work covers who generates it.

Movement 3 — sale to the Mumbai exporter (Punjab → Maharashtra)

This is a supply, so a tax invoice is issued with IGST (inter-state), and an e-way bill is generated against that invoice.

Three movements, two document types, three e-way bills — and each document matches what was actually happening at the time.

Supply on approval and line sales

Goods sent on approval: When a jeweller or machinery dealer sends goods to a customer to inspect before buying, the sale is not complete at removal. A delivery challan covers the movement. If the customer accepts, a tax invoice is issued. GST law sets a time limit for issuing the invoice in such cases, so check the current provision.

Line sales / sales van: Where the quantity to be sold to each customer is not known at dispatch, goods can move under a delivery challan and invoices are raised as each sale is made on the route.

Common mistakes

• Using a challan for an actual sale to delay tax. If ownership passes and consideration is agreed, it is a supply and needs an invoice.
• Using an invoice for job work. Sending goods to a job worker is not a sale; an invoice charging GST here confuses both parties' books.
• Forgetting the e-way bill for job work. Inter-state movement to a job worker needs an e-way bill irrespective of value.
• Not converting approval challans into invoices within the time limit.
• Mixing challan and invoice series. Keep separate, consecutive series.
• Leaving out value on the challan. Even without tax, the value is needed and drives the e-way bill.

Which one do I need? A quick check

1. Is ownership passing for a price right now? → Tax invoice
2. Are goods going for job work, on approval, for exhibition, or to your own place within the same GSTIN? → Delivery challan
3. Is the exact quantity unknown at dispatch (liquid gas, line sales)? → Delivery challan, invoice later
4. Is it an inter-state transfer to your own branch with a different GSTIN? → Usually tax invoice; confirm

Whatever the document, check whether the movement needs an e-way bill using our eligibility checker.

Where E-Way Easy helps

The E-Way Easy app is built around the sales invoice: you create the invoice and review the e-way bill details in one flow. For challan-based movements, prepare the challan as per Rule 55 and use the official e-way bill system. Our free GST tax invoice template is useful for quick one-off invoices.

Official sources

Invoice rules are in Section 31 and Rule 46; delivery challan rules are in Rule 55 of the CGST Rules, 2017. Read the current text on cbic-gst.gov.in and the GST tutorials at tutorial.gst.gov.in. For e-way bill requirements, see ewaybillgst.gov.in.