Goods Sent on Approval: The Six-Month Deemed Supply

Goods Sent on Approval explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

A jeweller sends pieces to a customer to consider. A machinery supplier leaves equipment on trial. A brand places sample stock with a dealer who will pay only for what sells.

In each case goods have moved but no sale has happened. Section 31(7) governs when the invoice must be raised — and it puts an outer limit on how long the question can stay open.

Where goods are removed before supply takes place or at a time when it is not known whether a supply will take place, the invoice must be issued before or at the time the supply is known, or six months from the date of removal, whichever is earlier. Movement in the meantime is on a delivery challan under Rule 55, not an invoice. At six months the supply is deemed to have taken place, whatever the commercial reality.

What section 31(7) says

"Notwithstanding anything contained in sub-section (1), 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 provision opens with a non-obstante clause overriding s.31(1), which would otherwise have required an invoice at removal.

The movement: delivery challan under Rule 55

Rule 55(1)(c) expressly permits a delivery challan in place of an invoice for the transportation of goods for reasons other than by way of supply, and clause (c) covers goods sent on approval.

The challan under Rule 55(2) must be in triplicate — original for the consignee, duplicate for the transporter, triplicate for the consigner — and must carry the date and number, the consigner's and consignee's names, addresses and GSTINs where registered, the HSN and description, quantity, taxable value, tax rate and amount, place of supply for inter-State movement, and signature.

Rule 55(3) requires the challan number to be declared in the e-way bill where one is required. An e-way bill is needed for movement above the threshold even though no supply is taking place — the transaction type is recorded as "others" or "sale on approval basis".

The three outcomes

The customer accepts within six months. The invoice is issued at the time the supply becomes known — that is, on acceptance. The time of supply under s.12(2)(a) follows.

The goods come back within six months. No supply. The return moves on a delivery challan too. Nothing to invoice.

Six months pass with no decision. The invoice must be issued on the six-month date. The supply is deemed to have taken place. Tax is payable even though the customer has not accepted, has not paid, and may still return the goods.

If the goods are subsequently returned after the six-month invoice, the supplier issues a credit note under s.34(1) — the goods were "returned" — subject to the s.34(2) outer limit of 30 November following the end of the financial year of the supply.

Where it gets missed

Sample stock left indefinitely with dealers. This is the classic exposure. Stock placed with a distributor "to show customers" and never formally returned or accepted quietly crosses six months, and the deemed supply arises without anyone raising an invoice.

Machinery on extended trial. Long evaluation cycles routinely exceed six months. The trial period does not extend the statutory limit.

Jewellery and high-value goods on approval. The value makes the exposure material and the volume makes tracking hard.

Goods moved between the supplier's own locations for approval. Movement between distinct persons is separately a supply under Schedule I; the approval regime does not displace that.

Interstate movement without an e-way bill. The absence of a supply does not remove the e-way bill obligation.

Reporting

GSTR-9, Table 16C requires disclosure of "goods sent on approval basis but not returned". The table is a direct invitation to reconcile the approval register against the deemed supplies invoiced during the year, and a nil figure with an active approval business will not survive scrutiny.

The ICAI Technical Guide on GSTR-9 treats Table 16 — supplies from composition taxpayers, deemed supply under s.143 and goods sent on approval — as a group of disclosures that draw on records outside the return system, which is precisely why they are often left blank.

Control procedure

• Maintain an approval register with the challan number, date of removal, party, description, value and the six-month expiry date.
• Run a monthly ageing report against that expiry date.
• Set an internal cut-off well before six months — 150 days is a common choice — to force a decision.
• Reconcile the register to GSTR-9 Table 16C at year end.
• Where the goods return after a deemed supply, issue the credit note within the s.34(2) window.
• Match the register against physical stock at each location, including stock lying with dealers.

Key takeaways

• s.31(7): invoice at the time supply becomes known, or six months from removal, whichever is earlier.
• Movement is on a delivery challan under Rule 55, in triplicate.
• An e-way bill is still required for qualifying movement, with the challan number declared.
• At six months the supply is deemed, whatever the commercial position.
• A later return needs a credit note within the s.34(2) limit.
• GSTR-9 Table 16C requires disclosure of goods sent on approval and not returned.

Read next

• Delivery Challan Under GST: When an Invoice Is Not Required
• Time of Supply of Goods: When Liability Arises
• GSTR-9 Annual Return: Table-Wise Filing Guide
• Debit Note and Credit Note Under GST

Disclaimer: Positions stated as on 5 September 2026, based on ICAI Background Material on GST, Volume I (2026 edition) and the ICAI Technical Guide on GST Annual Return (Form GSTR-9).