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Auto component suppliers on vendor-managed inventory hold owned stock at the OEM line or warehouse, with GST triggering on OEM consumption rather than physical movement; goods move out on a Rule 55 delivery challan with no tax, the OEM self-bills (ERS) at withdrawal, and the supplier must reconcile consignment stock-out against the OEM consumption report, the self-billed invoice and its own books — a four-way match that breaks once part-count and consignment locations multiply, while obsolete stock ages invisibly on the supplier's balance sheet.
Track owned consignment stock per part per OEM location on the identity closing = opening + replenishment (Rule 55 challan quantity) - consumption; trigger revenue and GST only on consumption or withdrawal; match the OEM self-billed invoice (ERS) quantity and price against the supplier stock-out and the min-max replenishment record; flag consumption-vs-stock-out divergence, missed challans, line rejections and shrinkage; age residual consignment stock per part and location against an obsolescence band.
Part master with min-max levels per OEM consignment location and agreed part price; Rule 55 challan series and e-way bill linkage; consumption-report feed from the OEM (backflush or store withdrawal); OEM self-billed invoice / ERS document type; GST-on-consumption rule; consignment-stock ageing bands; programme-end and engineering-change residual-stock handling with Section 394 scrap path.
A daily reconciled consignment position per OEM location showing opening, challan-in, consumption-out and closing per part, the OEM self-billed invoice matched to stock-out and price with variance coded by reason, GST raised on consumption tied to the self-billed invoice, min-max breaches flagged for replenishment, and a consignment-stock ageing view that surfaces obsolescence and programme-exit exposure before it crystallises.
A Tier-1 brake-component supplier near Manesar runs vendor-managed inventory at three Maruti Suzuki plants and one Hero MotoCorp line. On 30 April it holds ₹3 crore of its own finished stock sitting inside OEM premises — owned by the supplier, billed only when the OEM draws it onto the line. The month-end question is deceptively simple and routinely wrong: of the stock dispatched on Rule 55 challans this month, how much did the OEM actually consume, does that match the OEM’s self-billed invoices, and does the residual balance tie to what is physically on the OEM floor? This is consignment stock VMI reconciliation auto India in its real shape — a four-way match across two ownership boundaries, with GST that triggers on consumption rather than movement.
Quick reference
| Concept | Scheme / standard | Regulator / body | GST or tax treatment |
|---|---|---|---|
| Movement to OEM consignment location | Delivery challan under Rule 55 | CBIC / GST portal | No GST at movement (not a supply) |
| Supply / GST trigger | Consumption or withdrawal by OEM | CBIC | GST on consumption-date value |
| OEM self-billing | ERS — Evaluated Receipt Settlement | Commercial (ACMA-aligned) | OEM raises invoice on supplier’s behalf |
| Replenishment model | Min-max VMI per part per location | OEM/supplier contract | Driven by OEM consumption pull |
| Output GST rate (most components) | HSN-based | CBIC | 28% on most; 18% on selected; 5% on EV parts |
What VMI and consignment stock mean in auto
Indian OEMs — Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Hyundai, and Tier-1 system houses such as Bosch — push inventory risk and line-feed responsibility back onto suppliers through vendor-managed inventory (VMI) and consignment models. The supplier dispatches finished components into the OEM’s plant — to a line-side supermarket, a dedicated consignment store, or a third-party-logistics yard adjacent to the line — but retains legal ownership of those goods. Title does not pass on dispatch. It passes only when the OEM consumes the part: physically draws it onto the assembly line, or formally withdraws it from the consignment store against a production order.
That single fact — ownership retained until consumption — drives every reconciliation problem that follows. The stock is the supplier’s asset while it sits at the OEM, the GST event is deferred to consumption, and the billing is frequently generated by the OEM rather than by the supplier.
The Rule 55 movement: no GST at the boundary
Because dispatch to the consignment location is not a supply, no tax invoice is raised at movement. The goods travel under a delivery challan under Rule 55 of the CGST Rules — the same provision that covers supply of goods on approval and removals where the supply value is not determined at the time of removal. The challan declares consignor (supplier) and consignee (OEM consignment location), HSN, part description and quantity, and carries the e-way bill where the consignment value crosses the threshold.
No GST flows at this point. This is the first reconciliation discipline: every Rule 55 challan into a consignment location must be tracked as an owned-stock movement, not a sale, and the challan series must remain open until matched against the eventual consumption-triggered invoice. A supplier that books these as sales on dispatch over-recognises revenue and mis-times GST; a supplier that loses track of open challans cannot prove its consignment balance at audit.
The consumption trigger and OEM self-billing (ERS)
When the OEM consumes the part, the supply crystallises. GST liability arises on the consumption date, on the value of the consumed quantity at the agreed part price. In most OEM relationships the OEM generates the billing document itself — Evaluated Receipt Settlement (ERS), also called self-billing or a Self-Billed Invoice (SBI). The OEM’s ERP backflushes consumption from the vehicle bill of materials against units built, prices it at the contracted part rate, and issues a settlement statement. The supplier then books a matching tax invoice for GST compliance and reconciles it.
This inverts the normal billing flow. The supplier is no longer the primary author of its own revenue document — the OEM is. The supplier’s job becomes validation: does the OEM’s consumption quantity match my stock-out? Does the OEM’s price match the current contracted price (after any periodic price revision, RM-linked escalation, or LME-indexed adjustment)? Does the GST the OEM applied match the part’s HSN rate? Divergence here is the single largest source of silent revenue leakage in VMI relationships.
The four-way match
The core control reconciles four documents per part per period:
- Consignment stock-out — the supplier’s own record of what left the consignment store (its perpetual consignment ledger at the OEM location).
- OEM consumption report — the OEM’s backflush or store-withdrawal feed, which is the legal billing trigger.
- OEM self-billed invoice (ERS) — the settlement document the OEM raised.
- Supplier’s own books — the tax invoice the supplier booked and the GST it discharged.
In a clean month all four agree. In practice they diverge: the OEM consumption report leads the self-billed invoice by a settlement cycle; line-side rejections reduce consumption below stock-out; shrinkage at the OEM store (which the supplier owns) creates phantom stock; and a price-revision lag means the ERS bills at the old rate. For the upstream procurement equivalent of this discipline see PO-GRN-invoice three-way matching in India — a Tier-1 runs the inverse match on its own inbound buys.
Min-max replenishment reconciliation
Under min-max VMI the supplier contracts to hold each part between a floor and a ceiling at the OEM location. Consumption draws stock down; as it nears the min, the supplier replenishes toward the max on a fresh Rule 55 challan. The reconciliation identity per part per period is:
closing consignment balance = opening balance + replenishment (challan quantity) − OEM consumption
A break in this identity is diagnostic. A positive break (physical stock lower than the identity implies) points to unrecorded consumption, line rejection scrapped at the OEM, or shrinkage. A negative break points to a missed or mis-posted challan. The min-max signal itself is a control: a part sitting at max for weeks with no consumption is dead inventory accruing on the supplier’s books; a part repeatedly breaching min is a service-level and line-stoppage risk.
Worked example — Tier-1 holding ₹3 crore consignment stock on min-max VMI
A Tier-1 supplier holds ₹3 crore of finished consignment stock across four OEM locations, monthly consumption-based billing, 28% GST on the components, and 140 active part numbers under min-max VMI:
- Opening consignment balance (1 April): ₹3.00 crore at supplier cost; agreed sale value ₹4.10 crore
- Replenishment dispatched in April: ₹2.65 crore (sale value) on 312 Rule 55 challans
- OEM consumption reported in April: ₹2.48 crore (sale value) — the GST trigger
- OEM self-billed invoices (ERS) received: ₹2.41 crore — a ₹7 lakh shortfall versus the consumption report
- Closing consignment balance (30 April): expected sale value ₹4.27 crore
The ₹7 lakh ERS-vs-consumption gap resolves into: ₹4.2 lakh from a one-cycle settlement lag (consumed late in the month, self-billed in the next cycle), ₹1.9 lakh from a price-revision lag where the ERS billed three parts at the superseded rate, and ₹0.9 lakh from line-side rejections that reduced billable consumption below recorded stock-out. Each is a different reason code with a different action — accept-and-carry, raise a debit note for the price difference, or net against the rejection credit. GST is discharged on the ₹2.48 crore consumption figure, not on the ₹2.65 crore dispatched. The closing balance ages by part: 11 part numbers carry stock older than 90 days at one location, flagging an engineering-change residual that needs a commercial conversation before the programme winds down.
Three-way matching for OEM consignment settlement
See how stock-out, OEM consumption and the self-billed invoice line up — and where price-revision and settlement-lag breaks hide.
Open the three-way matching guide →Stock ageing at the consignment location
Because the supplier owns consignment stock until consumption, slow-moving and obsolete parts age on the supplier’s balance sheet while physically sitting inside the OEM. When a vehicle programme ends or a part is engineering-changed (an ECN supersedes the old part), residual stock the OEM will never consume becomes pure supplier exposure. The options at programme exit: return on a Rule 55 challan, scrap it (triggering Section 394 scrap TCS at 1% if sold — see free-issue steel and skeleton scrap reconciliation), or negotiate a buy-back into the OEM. A consignment-stock ageing report by part and location is the control that surfaces this before programme close crystallises a write-off.
How VMI ties into the wider auto reconciliation stack
VMI consignment is one rail in the broader automotive component manufacturing reconciliation stack, which also covers OEM kanban short-pays, FOMP warranty back-charges, tooling amortisation and PLI Auto claims — and sits within the manufacturing pillar guide. Suppliers that also send semi-finished parts out for plating or heat treatment run a parallel Tier-2 sub-vendor job-work reconciliation under Section 143. For the industry framework on supplier rating and commercial term standardisation across VMI relationships, see the Automotive Component Manufacturers Association of India (ACMA).
What automated reconciliation changes
Manual VMI reconciliation is a multi-day month-end exercise: matching the OEM’s self-billed invoices to a supplier consignment ledger maintained in spreadsheets, chasing consumption reports across plants, and discovering price-revision and ageing problems only after they have hardened. Purpose-built reconciliation software India treats consignment as a structured position — Rule 55 challan-in, consumption-out, self-billed-invoice match, GST-on-consumption — and surfaces only the lines that fail to tie. TransactIG carries 24+ industry presets, including a configuration for OEM consignment and ERS settlement matching. Customer outcomes include match-rate improvement from 51% to 88%. Build is two-to-four weeks on AWS Mumbai (ISO 27001:2022).