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Indian Tier-1 auto-component suppliers operating consignment stock under Evaluated Receipt Settlement (ERS) with OEM customers face four overlapping GST timing and reporting risks: the Section 31(7) time-of-supply fixed at withdrawal not at deposit, the Schedule I 6-month deemed-supply trap on un-withdrawn stock, the non-applicability of reverse-charge under Section 9(3)/(4) on registered-to-registered B2B ERS, and the consumption-month GSTR-1 alignment with the OEM's self-invoice. A typical Bajaj-Chakan fastener supplier holding ₹2.8 crore of consignment stock with daily-consumption ERS and weekly self-invoice cycles can carry ₹4.2 lakh of stale-stock Schedule I exposure within 6 months if the consignment-position reconciliation is not run monthly, and a GSTR-1 versus GSTR-2B mismatch of ₹35 to ₹50 lakh per quarter if the consumption-month alignment is not run on a live reconciliation engine.
On every initial dispatch to consignment, raise a Rule 55 delivery challan only — no Section 31 tax invoice and no GST output; stamp the dispatch with consignment-position counter, OEM warehouse code and 6-month Schedule I clock; load the OEM's daily consumption file into the consignment-position ledger; on receipt of the OEM's weekly ERS self-invoice, validate that the consumption-evidenced quantity matches the self-invoice quantity within tolerance and counter-acknowledge; stage the self-invoice into GSTR-1 prep for the consumption month; reconcile cumulative consignment-position against cumulative dispatches less cumulative self-invoiced consumption at month-end; alert on any stock-line crossing 150 days (Schedule I 30-day pre-alert) and 180 days (Schedule I trigger band); force a withdrawal-or-substitution decision at the 150-day alert.
Consignment-position ledger by part number, OEM warehouse, deposit date and 6-month clock; Rule 55 dispatch challan series for consignment movements separate from production despatch; OEM consumption-file ingestion rule with date, part, quantity and consumption-event reference; ERS self-invoice ingestion with OEM GSTIN, self-invoice number, taxable value and GST; GSTR-1 staging rule mapping ERS self-invoice to consumption-month return; Schedule I alert bands at 150 and 180 days; substitution-or-force-withdrawal workflow for stale stock.
A weekly consignment-position report by OEM warehouse and part number; a monthly ERS self-invoice reconciliation file tying daily consumption to weekly self-invoice quantity; a GSTR-1 prep file for the consumption month with all ERS self-invoices loaded and tax computed; a Schedule I exposure register for un-withdrawn stock approaching the 6-month line; and a year-end audit-defence pack tying consignment dispatches under Rule 55 to consumption-month tax invoices.
A Tier-1 fastener supplier in Aurangabad opens its monthly Bajaj-Chakan consignment review at 09:30 IST. The consignment-position ledger shows 12.4 lakh fasteners held across 38 part-numbers at the Bajaj Chakan engine assembly warehouse, with an aggregate consignment-stock value of ₹2.8 crore. The weekly ERS self-invoice file for the trailing four weeks shows ₹1.62 crore of consumption-evidenced billing — Bajaj has self-invoiced 7.18 lakh consumed fasteners at the agreed prices and the supplier’s GSTR-1 staging table has the entries queued for the month. The CFO has three questions on the table. First, a reconciliation gap of ₹38,000 has appeared between the OEM’s daily consumption file and the weekly self-invoice — the daily file shows 7.20 lakh consumed but the self-invoice covers 7.18 lakh. Second, a part-number called M8x55 has not been consumed in 168 days against the original dispatch — it is now 12 days short of the 180-day Schedule I trigger band. Third, the supplier’s GSTR-1 must align to the consumption-month, not the dispatch-month, and the staging is running on a manual spreadsheet that the controller flags as fragile. GST consignment stock withdrawal ERS auto component is the cleanest of the consignment-stock arrangements when the reconciliation engine runs cleanly — and the most exposed when it does not.
Quick reference
| Concept | Provision | Regulator | Position |
|---|---|---|---|
| ERS time of supply | Section 31(7) CGST Act | CBIC | At date of withdrawal-evidenced consumption |
| Initial dispatch document | Rule 55 CGST Rules | CBIC | Delivery challan only — no tax invoice |
| Self-invoice issued by OEM | Section 31 read with contract | CBIC | Procedural delegation, not reverse-charge |
| Reverse-charge applicability | Section 9(3) / 9(4) CGST Act | CBIC | Does not apply — registered-to-registered B2B |
| Schedule I deemed supply | Schedule I + 6-month rule | CBIC | Triggered if un-withdrawn over 6 months |
| Section 50 interest on Schedule I lapse | Section 50(1) CGST Act | CBIC | 18% per annum from original dispatch |
| GSTR-1 reporting period | Section 37 + Rule 59 | CBIC | Consumption-month, not deposit-month |
| Common HSN — fasteners | HSN 7318 | CBIC | 18% GST |
| Common HSN — auto parts | HSN 8708 | CBIC | 18% GST |
| TDS on the supply | Section 393(1)(k) code 1012 | CBDT | 0.1% above ₹50 lakh aggregate per FY |
What ERS actually is and how it changes the GST workflow
Evaluated Receipt Settlement is a procurement workflow that the major Indian OEMs — Bajaj, Hero, TVS, Royal Enfield, Maruti, Mahindra, Tata, Ashok Leyland — have implemented progressively across their high-volume Tier-1 supply chains over the last decade. The core mechanic: the supplier dispatches goods to an OEM-controlled consignment warehouse (sometimes co-located at the OEM plant, sometimes at a third-party 3PL like DHL or Maersk operating on the OEM’s behalf), and the goods are recognised in the OEM’s books only when the OEM’s MES system logs a withdrawal-driven consumption event on the production line. At that withdrawal moment, the OEM’s ERS system generates a self-billed invoice in the supplier’s name based on the agreed price list and the consumed quantity. The self-invoice is fed back to the supplier on a weekly or monthly cadence, the supplier counter-acknowledges, and payment is released against the self-invoice on the agreed payment-day cycle.
For the OEM, ERS eliminates the entire invoice-matching workflow — there is no supplier invoice to match against goods-receipt and purchase-order in a three-way match. The OEM’s own consumption file is the trigger. For the supplier, ERS compresses the cash cycle on consumed stock (the OEM cannot dispute an invoice the OEM itself raised) but extends the working capital exposure on the un-consumed consignment-position.
The GST workflow consequences are three. First, the initial dispatch to consignment is documented under Rule 55 only — a delivery challan, no tax invoice, no GST output. The goods remain the supplier’s inventory until withdrawal. Second, the tax invoice is created by the OEM as a procedural delegation; the supplier remains the GST-liable person and reports the tax invoice in the supplier’s GSTR-1 in the consumption month. Third, the reverse-charge mechanism does not apply because both parties are registered B2B participants — the supplier discharges output tax, the OEM avails ITC, on a normal forward-charge basis.
The wider consignment-stock and VMI mechanic, including the inventory-ownership question and the cost-of-capital trade-off, is in Consignment stock and VMI reconciliation for auto components.
Section 31(7) — why time of supply is fixed at withdrawal
Section 31 of the CGST Act governs the time of supply for goods. Section 31(1) sets the default: a tax invoice must be issued before or at the time of removal of goods. For a normal dispatch the time-of-supply collapses to the dispatch date.
Section 31(7) carves out the consignment and approval pattern explicitly: where the goods being sent or taken on approval for sale or return are removed before the supply takes place, the invoice shall be issued before or at the time of supply or six months from the date of removal, whichever is earlier. The operational reading: the supply does not take place at consignment-dispatch; it takes place at withdrawal-driven consumption; the invoice must be raised before or at the consumption event, and at the latest six months from the original removal-to-consignment date.
The 6-month line in Section 31(7) is the same line that the Schedule I 6-month deemed-supply trap rests on. The operational consequence: consignment stock that remains un-consumed for 6 months from dispatch loses its consignment status. The supplier must either be invoicing on a forced-withdrawal basis at or before the 6-month line, or recognising the stock as a deemed-supply with output GST plus Section 50 interest running from the original dispatch.
For a daily-consumption ERS arrangement on a high-volume part this is essentially never a concern — withdrawal happens continuously and the 6-month line is never approached. For long-tail, low-velocity SKUs the risk is real and the alert bands need to be live.
Size the Schedule I 6-month exposure on un-withdrawn consignment stock
Enter your consignment position by part, the weighted-average age of un-withdrawn stock and the proportion past 150 days to size the GST plus Section 50 interest exposure before the 6-month trigger fires.
Open the three-way match exception calculator →The weekly ERS self-invoice and how it lands in GSTR-1
The Bajaj-Chakan workflow runs on a daily-consumption, weekly-self-invoice cadence. Operationally:
Monday to Sunday: Bajaj’s MES system logs every withdrawal of supplier fasteners from the consignment warehouse — typically 25,000 to 30,000 fasteners per day across the 38 supplied SKUs, evidenced against the production-line draw-down work order.
Sunday night: an aggregation job rolls up the seven days of consumption to a weekly total per SKU per supplier. The aggregated quantity is multiplied by the agreed per-piece price in the supplier price-list to produce a per-line value. GST is computed at the applicable HSN rate (18% on HSN 7318 fasteners).
Monday morning: the OEM’s ERS system generates a self-billed invoice in the supplier’s name with the OEM’s purchase-side GSTIN as the buyer, the supplier’s GSTIN as the seller, and the consumption-week aggregation. The self-invoice carries an OEM-controlled invoice number sequence (typically prefixed with ERS) and the OEM’s e-invoice IRN (because the supplier crosses the e-invoice turnover threshold).
Monday afternoon: the self-invoice is pushed to the supplier’s procurement portal. The supplier’s ERP ingests the self-invoice, counter-acknowledges within a contractual SLA (typically 48 hours), and stages the invoice into the supplier’s GSTR-1 prep table for the calendar month of the consumption week.
Month-end: the supplier’s GSTR-1 is filed with all ERS self-invoices for the month consolidated. The output tax is discharged in the supplier’s GSTR-3B of the same month. The OEM’s GSTR-2B pulls the same invoices via the IRN; the OEM avails ITC in the consumption-month GSTR-3B.
The reconciliation discipline that has to work alongside this:
- Daily file versus weekly self-invoice: if the daily consumption file shows 7.20 lakh consumed and the weekly self-invoice covers 7.18 lakh, the 0.02 lakh gap must be investigated — typically a Sunday-night consumption logged after the aggregation job ran, picked up in the following week.
- Consignment-position rollover: opening position plus dispatches minus self-invoiced consumption equals closing position. Any unexplained drift triggers a stock-take at the OEM warehouse.
- GSTR-1 versus self-invoice file: every ERS self-invoice received in the month must appear in the supplier’s GSTR-1 of the month. A miss creates a supplier-side under-reporting that the OEM’s GSTR-2B will surface as a 2B-not-found exception in the next OEM ITC cycle.
Worked example — Bajaj Chakan fastener supplier under daily-consumption ERS
A Tier-1 fastener supplier in Aurangabad runs a consignment-stock ERS arrangement with Bajaj’s Chakan engine plant. The full monthly mechanics:
- Consignment position at opening of month: 12.6 lakh fasteners across 38 SKUs at aggregate cost of ₹2.84 crore.
- Dispatches during month: 30 lakh fasteners (high-velocity SKUs replenished twice weekly, low-velocity once a fortnight). Aggregate dispatch value: ₹6.75 crore. All under Rule 55 delivery challans — no Section 31 tax invoices, no GST output.
- Daily consumption file from Bajaj MES: 29.42 lakh fasteners consumed across the month. Aggregate consumed value at agreed prices: ₹6.62 crore. GST at 18%: ₹1.19 crore. Total ERS self-invoice value: ₹7.81 crore.
- Weekly ERS self-invoices: four weekly self-invoices loaded into the supplier’s GSTR-1 prep table during the month, plus a fifth catch-up self-invoice for the final 2 days of the month received in the following week.
- GSTR-1 disclosure: ₹6.62 crore taxable + ₹1.19 crore tax in the supplier’s GSTR-1 for the month, against Bajaj’s purchase GSTIN.
- Output tax discharged in GSTR-3B: ₹1.19 crore.
- Closing consignment position: opening 12.6 lakh + dispatched 30 lakh minus consumed 29.42 lakh = 13.18 lakh fasteners. Aggregate closing value: ₹2.97 crore.
Now the 6-month Schedule I overlay. Of the 38 SKUs, 35 are high-velocity with average days-on-consignment well under 30. Three are low-velocity engineering-change parts. The supplier’s consignment-position ledger shows:
- M8x55 (engineering-change variant): 4,200 units in consignment, original dispatch 168 days ago, no consumption to date. Aggregate value: ₹3.4 lakh. At 18% GST and Section 50 interest from dispatch, the 6-month trigger lands at day 180 — 12 days away.
- M6x40 (legacy variant being phased out): 2,800 units in consignment, dispatched in three batches at 95, 130 and 158 days ago. Aggregate value: ₹1.9 lakh.
- M10x70 (programme-specific): 800 units, dispatched 142 days ago. Aggregate value: ₹0.6 lakh.
The supplier triggers a force-withdrawal request to Bajaj on M8x55: either Bajaj consumes the stock against the next production lot or the supplier withdraws the stock back to its own plant on a return-leg Rule 55 challan. If neither happens by day 180, the Schedule I 6-month trigger fires and the supplier raises a tax invoice for 4,200 units at ₹3.4 lakh plus 18% GST = ₹61,200 output tax, plus Section 50 interest at 18% per annum running from day 1 (the original dispatch date) — at 180 days roughly ₹3,000 of interest. Total exposure on M8x55 if not withdrawn: ₹64,200.
Aggregate exposure across the three low-velocity SKUs at current ages: roughly ₹1.1 lakh of impending Schedule I tax-plus-interest if no action is taken. Aggregate cumulative exposure if the supplier runs a stale-stock tail of similar slow-movers across the year: ₹4.2 lakh.
The avoidable share — the share that monthly consignment-position alerts at the 150-day band would prevent — is roughly 80% of the total. The structural residual is the cancelled-programme or end-of-life part where withdrawal-back and substitution are no longer commercially viable; the supplier accrues those positions through normal stock-write-off rather than as a GST exposure.
Tax overlay — TDS and TCS adjacencies
The ERS GST workflow is the indirect-tax leg. The TDS leg under the Income Tax Act 2025:
- Section 393(1)(k), payment code 1012 — TDS by Bajaj on aggregate purchases from the supplier above ₹50 lakh per FY at 0.1%. The aggregate is computed on cumulative supply value (the consumed quantity at the agreed price) and Bajaj deducts at the time of credit to the supplier’s account or payment, whichever is earlier. For a ₹6.62 crore monthly consumption that crosses the threshold in the first month, every subsequent monthly self-invoice carries a 0.1% TDS deduction at source on the taxable value.
- Section 394, payment code 1071 — TCS on scrap. Does not typically apply on this flow; fastener scrap is generated at the supplier’s plant, not at the OEM consignment warehouse.
- GST law is unchanged by the Income Tax Act 2025. Section 31(7), Schedule I and the ERS workflow continue as before. Only the TDS overlay carries the new payment-code stack from 1 April 2026. Cross-era handling in TDS payment codes 1001-1092.
How does ERS interact with GSTR-9 reconciliation?
Three things must agree at year-end:
- GSTR-1 outward supplies — consumption-month aggregation of all ERS self-invoices, matched to Bajaj’s purchase-side GSTIN.
- GSTR-9 Tables 4 and 5 — outward supplies reconciled to the dispatch ledger (which carries the deposit-side Rule 55 challans, not invoices) and to the consumption ledger (which carries the tax invoices).
- Supplier’s consignment-position ledger — opening + dispatch - consumption = closing, reconciled to the OEM’s monthly warehouse stock-take.
The wider GSTR-9 reconciliation cycle is in GSTR-9 filing for auto-component manufacturers.
Continue reading — the auto-component reconciliation cluster
- Sub-pillar: Automotive component manufacturing reconciliation in India.
- Consignment-stock mechanics: Consignment stock and VMI reconciliation for auto components for the inventory and working-capital analysis.
- Year-end reconciliation: GSTR-9 filing for auto-component manufacturers.
- External authority: the CBIC GST portal for Section 31(7) of the CGST Act, Schedule I and Rule 55.
What automated reconciliation changes
Running daily-consumption ERS on 38 SKUs across a Bajaj-Chakan consignment warehouse, reconciling weekly self-invoices to the OEM’s daily MES file within tolerance, staging consumption-month GSTR-1 entries against the OEM’s purchase-side GSTIN, and alerting on the 6-month Schedule I trigger band for low-velocity SKUs is where mid-sized Tier-1s spend three to five days of finance team capacity per month — most of it on the manual GSTR-1 staging spreadsheet. Purpose-built auto component reconciliation software India ingests the OEM consumption file daily, reconciles weekly ERS self-invoices to the consumption-evidenced quantity within tolerance, stages the GSTR-1 prep file by consumption month, runs the consignment-position rollover with 150-day and 180-day Schedule I alerts, and surfaces stale-stock force-withdrawal candidates before the 6-month trigger fires. TransactIG carries 24+ industry presets including configurations for consignment-stock ERS and the Section 31(7) consumption-month alignment. Customer outcomes include match-rate improvement from 51% to 88% on consignment-position reconciliations. Build is two-to-four weeks on AWS Mumbai (ISO 27001:2022). For the wider GST-side discipline see GST reconciliation software.