GST for manufacturers
A factory files GST returns every month, yet most of its GST exposure sits in job-work challans, scrap sales and stock moved between units. Gaps there surface later as interest, reversed credit or a notice. We handle returns, reconciliations, job work, e-invoicing, reviews and notice replies for manufacturers and the job workers and group units around them.
Last reviewed 3 October 2026
For a manufacturer, GST depends on how goods move as much as on the monthly return. Material goes to a plating or heat-treatment job worker, passes between units and leaves as scrap or finished stock. When those movements are not matched to the return, the result appears years afterwards as a demand with interest, or as credit that a customer cannot claim. From our Nashik office we reconcile returns with the books, e-invoices and stores records of factories and multi-plant groups, and we reply to notices on the same records.
The law we refer to is the Central Goods and Services Tax Act, 2017, the Maharashtra Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act, 2017, with the rules and notifications under them.
GST pressure points on the shop floor
In a factory, a GST dispute usually starts in stores, at the dispatch gate or in the job-work challan book, months before the return that reports it. By the time an officer asks, the challan may be two years old and the credit already used. Our reviews therefore begin with the points below. They are general notes under the law as at 1 October 2026 and do not constitute advice on a particular set of facts.
Job work and the return clock
Inputs sent for machining, plating, heat treatment or assembly must come back within one year, and capital goods within three years, under section 143 of the CGST Act. Moulds, dies, jigs, fixtures and tools fall outside those limits. A lot that does not return is treated as supplied on the day it left, with tax and interest. Delivery challans, goods received back and ITC-04 have to agree item by item, which we test lot by lot for castings, forgings and CNC-machined parts.
Scrap, turnings and process waste
Scrap sold from the factory or from the premises of a job worker is a taxable supply. Each type of waste (turnings, runners and risers, rejected castings) needs a settled rate, classification and invoicing party. An officer will compare the quantity sold with the production and scrap registers.
Price revisions and credit notes
Auto and engineering customers often revise prices months after dispatch. Credit or debit notes under section 34 must be issued within the time limit, and the customer must adjust its credit to match. Until the Government notifies the Finance Act, 2026 changes to section 15(3)(b) and section 34, the existing conditions continue to apply.
Multi-unit and group supplies
Registrations in different states are distinct persons. Stock moved between them needs an invoice and a value, and related-party supplies follow rule 28 of the CGST Rules. Credit on common services used by more than one registration must be distributed through an Input Service Distributor registration, which has been compulsory for this purpose since 1 April 2025.
Capital goods and blocked credit
Expansion years bring large credit on machinery, installation and foundations. A claim that includes blocked civil work may later have to be reversed, so eligibility is checked before the credit enters the return. If a machine is later sold or transferred, a reversal has to be calculated.
Related reading
Full GST scope: GST. Sector context: manufacturing. Job-work detail: GST on job work for manufacturers. Capital-goods ITC: ITC on capital goods. To discuss a review or a notice, contact the firm.
Common questions
Our job worker keeps material for more than a year. What happens?
Inputs not returned within one year (or capital goods within three) are treated as supplied by you to the job worker on the day they were sent out, and tax and interest can arise from that date. The Commissioner may extend the limits on sufficient cause. Open challans should be reconciled with the job worker before the limit expires.
Do we add free OEM tooling to our part invoices?
Where moulds or dies belong to the customer and the contract does not make them your cost, their value is generally excluded from the value of the parts (CBIC Circular 47/21/2018-GST). If the contract made the tooling your cost, amortised cost may need to be added.
How often should a factory run a GST review?
Once a year is a sensible minimum. The review is ideally held before the annual return, while corrections can still be included in it. A further review is useful after a software change, a new unit or a new job-work chain.
We have plants in two states. How should shared software be credited?
Credit on services used by both registrations has to be distributed through an Input Service Distributor. Material moved between the plants is a supply, so it needs an invoice and a valuation under the distinct-person rules.
Manufacturing, GST and Indirect Tax. See also: GST and Indirect Tax, Accounting and Compliance, Manufacturing finance
Contact the firm
About GST for manufacturers, or any related matter. A phone number or an email address is enough for us to reply.
- Office
- Office at Plot 08, Eden Complex, Gangapur Road, Nashik 422222
- Hours
- 9:30 AM to 8:00 PM; other times by appointment