Year 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.
On 31 March, an entity's stock sits in four places — its own godown, a truck, a job worker's floor, and a customer's premises on approval. Each one carries a different GST consequence, and only the first is straightforward.
"Receipt of goods is a primary condition for availing ITC under Section 16(2)(b)." For ex-works contracts, "ITC becomes eligible the moment delivery is taken by the person authorised by the recipient (e.g. the transporter), even before physical receipt at the recipient's premises." For goods with a job worker, inputs must return in 1 year and capital goods in 3 years; failing that, "it shall be deemed that the principal had supplied such goods to the job worker on the day when the said goods were originally sent out."
Goods in transit: the contract decides
Door-delivery contracts — supply including delivery at the recipient's premises: "ITC on the supplier's invoice is available only when the goods are actually received by the entity."
Ex-works contracts: "ITC becomes eligible the moment delivery is taken by the person authorised by the recipient (e.g. the transporter), even before physical receipt at the recipient's premises. This is supported by the Explanation to Section 16(2)(b), under which goods are deemed to be received by the recipient where they are delivered to a third person on the recipient's direction."
Goods received in lots or instalments against a single invoice: "under the first proviso to Section 16(2), ITC is available only on receipt of the last lot/instalment."
And the year-end effect: "This gives rise to a timing/cut-off difference between the period in which the supplier's invoice (and GSTR-2B reflection) is available and the period in which ITC may validly be availed — typically surfacing at year-end where goods are invoiced in March but received in April."
The verification that GSTR-2B cannot do for you
"Verify, with reference to the nature of the contract (door-delivery vs. Ex-Works), not merely on the date of the invoice or its appearance in GSTR-2B."
This is the sharp point. GSTR-2B is a supplier-side document; it reports that an invoice was filed, not that goods were received. The auto-populated figure is therefore not evidence of eligibility — and for door-delivery contracts it will routinely be ahead of the entitlement.
Two more cut-off steps:
- scrutinise "goods-in-transit / in-transit closing stock to ensure ITC on March-dated invoices for goods received in April has not been availed prematurely";
- "Where goods are received in lots, confirm ITC was deferred to receipt of the last instalment."
Goods with a job worker
"A job worker is a person who carries out a process or a treatment on goods belonging to another registered person. A job worker need not be a registered person."
The documentation: a record of inventories sent and received back, "proper documentation in the form of a delivery challan as required under Rule 45 of the CGST Rules", and details furnished in FORM GST ITC-04 "within the applicable periodicity."
Direct despatch from the vendor: "there can be cases where the raw materials are directly sent to job workers premises from the vendors' location, without passing through the principal. In this situation the principal can claim ITC only when the goods are physically received by the job worker."
And multi-stage movement — "goods move to multiple job workers e.g. textile industry for various stages of production" — which is precisely where ITC-04 tracking usually breaks down.
The time limits: "Inputs are to be received back within 1 year, and capital goods within 3 years, each extendable, with the prior approval of the appropriate authority, by a further 1 year and 2 years respectively. No such time limit applies to moulds, dies, jigs, fixtures and tools."
The consequence of breach is retrospective, and that is what makes it expensive: "it shall be deemed that the principal had supplied such goods to the job worker on the day when the said goods were originally sent out. Accordingly, the transaction is treated as a deemed supply, and tax along with applicable interest becomes payable with reference to that original date of despatch."
So a breach discovered at finalisation carries interest running from a date up to a year or three years earlier — not from the date the limit expired. Job work and capital assets →
Sale on approval
"In the case of goods sent on sale or approval basis, the supply shall be deemed, either at the time of supply or six months from the date of removal, whichever is earlier."
The auditor's step: "If the goods are not returned within 6 months, it should be treated as deemed supply and creation of liability and payment of tax would be warranted."
In accounting terms these goods are still stock; in GST terms they may already have been supplied. The reconciliation between the approval register and the closing stock schedule is the only place that difference becomes visible.
Physical verification differences
"Discrepancies noticed on physical verification of inventory between book stock and physical stock must be examined… These differences may arise due to expired goods (beyond shelf life), theft, damage, distribution of free samples, return to vendors and non-accounting of purchases."
And the single action point: "The auditor must ensure that ITC must be reversed when goods are written off."
Section 17(5)(h) covers goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples — and a physical verification write-off is the commonest route by which that reversal is missed, because the entry is made in the stock ledger rather than the tax ledger. Blocked credit heads in GSTR-9C →
Key takeaways
- Receipt of goods is a condition for credit under section 16(2)(b), and the contract type decides when receipt occurs.
- Ex-works: credit on delivery to the transporter, via the Explanation to section 16(2)(b).
- Door-delivery: credit only on physical receipt — so March invoices for April receipts are premature.
- Lots and instalments: credit only on the last lot, under the first proviso to section 16(2).
- GSTR-2B is not evidence of receipt and must not be the basis of the cut-off decision.
- Job work needs a rule 45 delivery challan and ITC-04; a job worker need not be registered.
- Direct vendor-to-job-worker despatch gives credit only when the job worker receives the goods.
- Inputs return in 1 year, capital goods in 3, extendable by 1 and 2; no limit for moulds, dies, jigs, fixtures and tools.
- Breach is a deemed supply dated from original despatch, with interest from that date.
- Sale on approval becomes a supply at 6 months from removal if not returned.
- Write-offs on physical verification require ITC reversal.
Read next
- Reconciling GST Ledgers with the Books at Finalisation
- Review of Fixed Assets under GST During Finalisation
- Section 18(6): Disposal of Capital Goods on Which ITC Was Taken
Disclaimer: Positions stated as on 5 September 2026, based on sections 16, 17(5) and 143 of the CGST Act, 2017 and rule 45 of the CGST Rules, 2017 read with Form GST ITC-04, as reproduced in the ICAI Handbook on Finalisation of Accounts with GST Perspective (Second Edition, June 2026).