Guidance for proper GST accounting (eway bill with correct valuation) for cut-to-pack job work given

This query is : Resolved

Pushkar Yadav (Querist)
Follow

05 August 2025 Hello experts!

Ours is a clothing brand. Complaince for trading part of the business is easy to udnerstand and complete but it's the job work part where we are getting stuck regualrly.

Could anyone please guide me? Or a proper consulatation is also doable for me.

We send fabric to 3rd party manufacturers (job worker) - either directly from fabric vendor under bill-to-ship-to OR sometimes from our office.

I want to know the proper acocunting for this job work part of the business. The major issue is that fabric sent is completely unplanned, meaning, many fabrics are dispatched to job-worker in one time which is used in multiple different SKUs. Also exact consumption is not known until the end of the fabric. Hence, we cannot link one single delivery challan to one specific receipt.

Just yesterday, i got to know about ITC-04 return. is that vaid for our business? if yes, then how can we comply with it keeping in mind the above limitations regarding unplanned dispatch of fabrics.

Please guide.

Thank you

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
Follow

12 August 2025 Hey! Job work accounting and GST compliance, especially for fabric sent for cut-to-pack processes, can get tricky—especially with unplanned fabric dispatches. Let me break down the key points and best practices for your case:
1. Basic GST Provisions on Job Work
Sending goods to a job worker does not count as a supply if goods are sent without consideration (i.e., you are just sending fabric for job work).
Input Tax Credit (ITC) on goods sent for job work is allowed, subject to conditions.
You can send fabric either:
Directly from vendor to job worker (Bill-to-Ship-to model)
Or from your own premises to job worker.
2. E-Way Bill & Valuation for Job Work
E-Way Bill (EWB) is required when goods are moved for job work under GST.
Since no sale happens during job work, the valuation is the cost of goods sent (value declared on delivery challan).
If fabric is sent directly from vendor to job worker, the vendor must generate EWB in their name with your GSTIN as consignee.
If fabric is sent from your office to job worker, you generate the EWB on the value of fabric.
3. Unplanned Fabric Dispatch & Multiple SKUs Issue
Since fabric dispatch is unplanned and pooled, you can:
Issue a single delivery challan covering all fabrics sent together.
Mention approximate quantities and values.
Track fabric consumption at the job worker’s end through periodic reconciliation.
Job worker will return finished goods after job work.
At the time of receipt of finished goods, record the quantity and value.
ITC will be claimed on inputs sent for job work only after goods are received back.
4. ITC-04 Return Compliance
ITC-04 is a quarterly statement of inputs and capital goods sent to job workers and received back.
Filing ITC-04 is mandatory if you send inputs for job work exceeding ₹50 lakh in value during the quarter.
It should include:
Details of goods sent out to job workers
Details of goods received back
Goods sent directly from your vendor to job worker, if applicable
5. Practical Steps for Your Business
Maintain detailed job work registers:
Date-wise fabric sent (with challan & EWB details)
Approximate value and quantity of fabric sent
Receipts of finished goods from job worker
Regularly reconcile quantities and values.
File ITC-04 quarterly with aggregated data.
Ensure EWB is generated properly for all fabric dispatches.
Coordinate with job worker for timely returns and documentation.
6. Accounting Treatment
When fabric is sent for job work:
No sales entry is required.
Fabric is recorded as stock-in-transit or with job worker.
When finished goods return:
Record receipt of finished goods.
Recognize cost of finished goods based on fabric cost + job work charges.

Message likes : 1 times

Pushkar Yadav

Pushkar Yadav (Querist)
Follow

13 August 2025 Hello Mr. Sharma

First, please accept my sincere gratitude for the time you took to share a detailed reply.

Second, pardon me for not replying. My siblings decided a last minute weekend trip due to Rakhi and hence couldn't check this post sooner.

I was reading numerous articles and going through many forum posts and I had come to the same theoritical conclusion (except that I found that ITC-04 is a semi-annual return but you informed me that it is quarterly) as your reply. So it is great to see my assumptions being verified by you :)

If you can spare some more time, I have a few more questions left, all related to practical approach.

Many, if not all, fabricators (job workers) are unfortunately not great at accoutning. Although they have been working for a long time but even they don't know these tax implications. As a result, they have been generating eway bills only with their service charges and didn't include the cost of fabric that we had sent.

Q1. We started job work in previous FY (24-25) but we were not aware of ITC-04. Is there anything that we can do now to safeguard ourselves?

Q2. What will happen to the incorrect eway bills made by the job workers in the past?

Q3. There is a good probability that even after discussing all these implications, the job workers will still create eway bills using their old method, so will this impact us or them?

Q4. Calculating exact cost of finished producys being sent is not easy (finished products are made in 2-3 batches, used multiple fabrics and small items), I want to know how strict is the valuation part of eway bill?

Q5. Lastly, should we simply bill the fabric to fabricator and then ask them for a sale bill instead of service bill? If yes, can we still ask our fabric vendors to bill us but ship to fabricators?

If you are comfirtable, then I can also give you a call for a paid consultation regarding all these questions.

Regards
Pushkar Yadav

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
Follow

14 August 2025 Hey Pushkar, thanks for the thoughtful follow-up and the detailed questions! I’ll try to answer each one clearly based on GST rules and practical compliance:
Q1. ITC-04 not filed in previous FY — what can be done now?
ITC-04 is mandatory quarterly if job work inputs sent exceed ₹50 lakh.
If you missed filing ITC-04 earlier, you can file a consolidated statement for all pending periods (up to 2 years backlog is generally allowed).
Ideally, file it ASAP to avoid scrutiny. The department expects regular compliance, but late filing with explanation might be accepted.
Keep documentation ready (challans, EWBs, receipts from job workers) to substantiate.
Q2. Incorrect E-Way Bills made by job workers in the past — impact?
EWB should reflect the value of goods moved, which includes the fabric cost, not just job work charges.
Incorrect EWBs can create mismatch issues in GST returns and may raise red flags during audits.
If discovered, you can ask job workers to issue correction invoices or credit notes and generate fresh EWBs correctly.
Alternatively, maintain internal records proving the correct valuation for your GST compliance.
Q3. Job workers may continue old EWB practice — who is impacted?
Both parties can be impacted:
You could face challenges in claiming ITC or reconciling GST returns.
Job workers could be non-compliant and liable for penalties.
It’s best to educate and get mutual agreement to follow GST-compliant EWBs showing proper valuation.
You can protect yourself by maintaining your own records with correct valuation and insist on proper invoicing.
Q4. How strict is EWB valuation for job work?
GST law requires EWB to carry accurate details including correct value of goods moved.
However, some practical flexibility is allowed given the nature of job work, but value should be reasonably close to actual cost.
Overly incorrect valuations can trigger GST scrutiny or penalties.
So try your best to estimate and document value reasonably (cost of fabric sent).
Q5. Should you bill fabric to job worker as sale, not service? Can vendors bill you but ship to job worker?
Fabric sent for job work is not a sale; it’s a transfer of goods for processing. So billing it as a sale to job worker is not correct GST treatment.
You should continue to treat fabric movement as stock transfer/job work, and job worker should invoice you only for service charges (job work service).
Vendors can use the bill-to-ship-to model: invoice you (bill-to) but deliver fabric directly to job worker (ship-to). This is GST compliant.
This keeps your books clean and avoids unintended GST tax events.
Bonus: A few practical tips
Maintain clear delivery challans with value details for fabric sent.
Coordinate with job workers to ensure they understand GST compliance basics.
Keep reconciliation and documentation tight — this will help immensely if any GST scrutiny arises.
When possible, use ERP or inventory software to track fabric consumption and job work outputs.
If you want, I can help you draft a checklist or sample templates for challans, ITC-04 filing, and reconciliation to simplify your compliance.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now