Dear Raghuram,
On the last working day the employee completes all the handing over formalities and submits no due certificate basing on which the company will complete the full and final settlement formal;ities. The reliving letter should be issued on the last working day on completion of all handing over formalities.
The employee will demand for that because at a later date if the company asks for some thing else he/she may not be in a position to answer. The service certificate can be at a later date but it is better to issue the relieving letter on the last working day.
In some of the companies on the last working day they will issue the relieving letter, service certificate and cheque for full and final settlement amount also, this shows the professional status of the company because in general every employee will be on a minimum of one month notice period and by the time of relieving the company can complete / compute all the related matters of the out going employee hence on the last working day the mangement will arrange a farewell session and in the session itself the HOD / Unit head will hand over the cheque and all other related documents like relieving / service certificate etc.
Regards - kamesh