The Goods and Services Tax Department reportedly stepped up scrutiny during August 2026, issuing notices concerning multiple financial years and a broad range of compliance issues. The communications covered discrepancies in turnover, input tax credit, supplier compliance, reverse-charge liabilities, tax classification, exemptions, inter-State transactions, exports, refunds and e-way bills.

The increased scrutiny indicates that GST enforcement is no longer limited to differences appearing in periodic returns. Officers can now compare information drawn from GSTR-1, GSTR-3B, GSTR-2B, annual returns, e-invoices, e-way bills, customs records, financial statements and supplier filings.

As a result, a mismatch appearing in one database may lead to the same transaction being examined against several independent sources of information.

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Taxpayers Must First Identify the Nature of the Notice

Before preparing a response, taxpayers must determine whether the communication is a preliminary intimation, a return-scrutiny notice or a formal show-cause notice proposing recovery.

FORM GST ASMT-10 is issued under Section 61 of the Central Goods and Services Tax Act, 2017, read with Rule 99 of the CGST Rules. Through this form, the proper officer identifies discrepancies noticed during scrutiny of returns and asks the registered person to furnish an explanation.

FORM GST DRC-01B ordinarily concerns a difference between the tax liability declared in GSTR-1 or the Invoice Furnishing Facility and the liability discharged in GSTR-3B.

FORM GST DRC-01C relates to excess input tax credit claimed in GSTR-3B when compared with the credit reflected in GSTR-2B, subject to the prescribed parameters.

FORM GST DRC-01, meanwhile, is the electronic summary accompanying a formal show-cause notice in demand proceedings. For periods up to the financial year 2023-24, such proceedings may arise under Sections 73 or 74, depending on whether fraud, wilful misstatement or suppression is alleged. Section 74A principally governs the determination of tax for the financial year 2024-25 onwards.

This distinction is important because the procedure, response strategy and possible consequences differ according to the nature of the communication.

Turnover Differences Remain a Major Source of Notices

One of the most frequently examined issues is a mismatch between the turnover recorded in financial statements and the figures reported in GST returns.

The Department may compare the sales register and trial balance with GSTR-1, GSTR-3B, GSTR-9, e-invoice data and e-way bill records. A difference between these figures may prompt the officer to suspect unreported supplies or short payment of tax.

However, every variation does not necessarily represent suppressed turnover. Differences can arise from credit notes, advances, amendments, branch transfers, non-GST income, sales of capital assets, year-end accounting entries or transactions reported in another tax period.

For instance, if the financial statements disclose turnover of ₹10 crore while GSTR-1 reflects ₹9.70 crore, the Department may seek an explanation for the difference of ₹30 lakh. The taxpayer must then prepare a transaction-level reconciliation showing the exact reason for the variation and establish whether the relevant amount was taxable, reported elsewhere or outside the scope of GST.

A general assertion that the accounts have been audited may not be sufficient when the notice identifies a specific numerical discrepancy.

Excess ITC Claims Being Checked Against GSTR-2B

Input tax credit continues to be one of the most closely monitored areas under GST.

Where the credit claimed in GSTR-3B exceeds the amount available in GSTR-2B, the Department may issue an intimation or initiate scrutiny. Taxpayers must identify the invoices responsible for the difference instead of treating the entire amount as either automatically eligible or inadmissible.

A mismatch may arise because of delayed supplier filings, subsequent amendments, debit notes, incorrect GSTIN reporting, imports, Input Service Distributor credit or timing differences between return periods.

Suppose a taxpayer claims ITC of ₹12 lakh in GSTR-3B while the relevant reconciliation reflects only ₹11.20 lakh. The resulting difference of ₹80,000 must be examined invoice by invoice. Its admissibility will depend on the law applicable during the relevant period and whether the statutory conditions for claiming credit were satisfied.

The principal provisions governing such disputes include Sections 16, 38 and 41 of the CGST Act, along with the corresponding rules and period-specific restrictions.

Credit From Cancelled or Non-Compliant Suppliers Under Scrutiny

Notices are also being issued where credit has been claimed on invoices issued by suppliers who did not file returns, failed to pay tax, were found to be non-existent or had their GST registrations cancelled retrospectively.

Such cases frequently move beyond a simple return mismatch. The Department may question whether the underlying purchase was genuine and whether goods or services were actually received.

Recipients should therefore preserve the complete commercial trail, including tax invoices, purchase orders, e-way bills, transport records, goods-receipt notes, stock entries, bank-payment evidence and correspondence with suppliers.

For example, if goods worth ₹5 lakh are purchased with GST of ₹90,000 and the supplier’s registration is later cancelled retrospectively, the Department may propose denial of the ₹90,000 credit. The recipient would then need to demonstrate the genuineness of the purchase and compliance with the conditions under Section 16(2).

The mere availability of an invoice or proof of banking-channel payment may not, by itself, answer every allegation concerning the actual movement or receipt of goods.

Appearance in GSTR-2B Does Not Guarantee ITC Eligibility

The reflection of an invoice in GSTR-2B is an important compliance factor, but it does not by itself establish that the corresponding credit is legally admissible.

The Department may still deny or seek reversal of credit if it relates to blocked items under Section 17(5), personal consumption, non-business expenditure or exempt supplies. Questions can also arise where the basic conditions under Section 16 are not fulfilled.

Businesses making both taxable and exempt supplies must determine the proportion of common credit attributable to exempt activities. Input and input-service credit may require reversal under Rule 42, while common credit relating to capital goods may be governed by Rule 43.

If 20% of a taxpayer’s total supplies are exempt and the taxpayer claims the entire common input-service credit, the Department may calculate and demand the proportionate amount attributable to exempt turnover.

Periodic computation of common-credit reversals is therefore necessary. Waiting until an annual return or a departmental notice may result in additional interest exposure.

Classification, GST Rates and Exemption Claims Face Examination

GST scrutiny is not confined to arithmetical discrepancies. Officers are also questioning the substantive tax treatment adopted for particular goods or services.

Notices may allege that the taxpayer used an incorrect HSN or SAC code, paid tax at a lower rate, wrongly classified a taxable supply as exempt or non-GST, or failed to satisfy the conditions attached to an exemption notification. Disputes may also arise over whether a transaction constitutes a composite or mixed supply.

If a taxpayer classifies a product under an entry attracting GST at 5%, but the Department considers another entry carrying a 12% rate applicable, the notice may propose recovery of the 7% differential, together with interest and the applicable penalty.

Similarly, where receipts of ₹50 lakh are treated as exempt, failure to establish compliance with an essential condition of the relevant notification may expose the entire amount to GST.

Responses to classification and exemption notices require more than a reconciliation statement. Taxpayers must examine the product or service, contractual terms, applicable tariff entries, statutory provisions and relevant notifications.

Discounts, Incentives and Credit Notes Draw Attention

Year-end discounts, volume-based incentives, dealer schemes, secondary discounts and post-sale price reductions are another important area of scrutiny.

The Department may examine whether the supplier was legally entitled to reduce the taxable value and output tax liability. A distinction must be maintained between a financial or commercial credit note and a GST credit note used to reduce tax.

For example, where a supplier sells goods worth ₹1 crore and grants a year-end turnover discount of ₹5 lakh, the Department may verify whether the arrangement satisfies the requirements of Section 15(3) and whether the credit note complies with Section 34.

The existence of a commercial understanding between the parties does not necessarily permit a corresponding reduction in GST liability. The statutory conditions, documentation and recipient-side ITC treatment must also be examined.

Expense Ledgers May Reveal Unpaid Reverse-Charge Tax

Authorities are increasingly analysing expense ledgers to determine whether GST was payable under the reverse-charge mechanism.

Potential areas include legal services, director services, goods transport agency services, sponsorship, import of services, specified renting transactions, certain government services and sector-specific payments such as royalty.

If a company records an expense of ₹10 lakh for a service taxable under reverse charge at 18% but does not discharge the tax, a liability of ₹1.80 lakh may arise, apart from interest and any applicable penalty.

Businesses should consequently perform an expense-category-wise review rather than relying only on the figures already disclosed in GST returns. The nature of the supplier, recipient, service, place of supply and notification applicable during the relevant period must be verified.

Transactions Between State GST Registrations Also Being Examined

Separate GST registrations held under the same Permanent Account Number are ordinarily treated as distinct persons under GST law.

Scrutiny may arise where a head office incurs expenses for branches, one registration claims the entire credit on services used across several States, or internal services between registrations are not appropriately accounted for.

Questions may also be raised regarding the distribution of common input-service credit through the Input Service Distributor mechanism and the treatment of cross-charges between distinct persons.

For instance, where a ₹30 lakh software licence is invoiced to the Delhi GSTIN but used by employees in Delhi, Haryana and Maharashtra, the business must examine whether the related credit has been appropriately distributed or allocated.

Relevant provisions include Sections 20 and 25 of the CGST Act, Schedule I and the applicable valuation and ISD rules.

SEZ Supplies, Exports and Refunds Remain Documentation-Heavy

Zero-rated supplies and GST refunds are particularly dependent on documentary compliance.

The Department may verify whether the transaction qualifies as a zero-rated supply, whether a valid Letter of Undertaking or bond was furnished, and whether the required SEZ endorsements, shipping records and export-realisation documents are available.

Authorities can also check refund computations, the treatment of imported inputs and restrictions applicable to export incentives during the relevant period.

Where goods worth ₹25 lakh are supplied to a Special Economic Zone unit without payment of IGST under an LUT, failure to produce the prescribed endorsement or supporting evidence may result in the zero-rated treatment being questioned.

Taxpayers dealing with exports and SEZ supplies must maintain transaction-wise records instead of attempting to reconstruct the evidentiary trail only after receiving a notice.

E-Way Bill Lapses Can Lead to Detention Proceedings

Some proceedings begin not with scrutiny of returns but with interception of goods in transit.

Officers may compare the physical goods with the accompanying invoice and e-way bill. They can examine the description and quantity of goods, vehicle number, place of dispatch, destination and validity period of the e-way bill.

If goods worth ₹8 lakh are intercepted after the accompanying e-way bill has expired, detention proceedings may be initiated depending on the facts and the statutory framework applicable to the movement.

Even apparently minor inconsistencies should be addressed promptly. Businesses must ensure that transport documents accurately correspond with the goods, vehicle and route before dispatch.

Sections 68 and 129 of the CGST Act, together with the applicable e-way bill rules, are central to such proceedings.

Integrated Data Is Reshaping GST Enforcement

The expansion of electronic reporting has enabled the Department to build an integrated compliance profile of each registered person.

Information reported in GSTR-1 can be compared with GSTR-3B, GSTR-2B, GSTR-9, e-invoices and e-way bills. Supplier compliance, customs records, books of account and audited financial statements may provide further verification points.

This interconnected framework means that an incorrect entry may affect several datasets and trigger scrutiny across multiple periods. It also means that taxpayers cannot treat monthly return filing, annual reconciliation and financial reporting as separate exercises.

Immediate Steps After Receiving a GST Notice

A taxpayer receiving a notice should first identify the form, statutory provision, financial year and tax period involved. The exact discrepancy must then be separated into factual, accounting, documentary and legal components.

The taxpayer should reconcile the relevant returns with books of account and collect invoices, agreements, credit notes, e-way bills, payment records, transport documents and other supporting evidence.

Where the dispute concerns classification, exemption, reverse charge or ITC eligibility, the underlying legal provisions and notifications must be examined separately. Tax, interest and penalty calculations should also be independently checked instead of being accepted solely because they appear in the notice.

Every allegation should be answered individually and supported by relevant documents. A broad or consolidated denial may leave important discrepancies unexplained.

Continuous Reconciliation Emerges as Key Safeguard

The recent pattern of GST notices demonstrates that merely filing returns within the prescribed time is no longer sufficient. Businesses must ensure that their returns, accounting records, invoices, transport documents and supplier data remain consistent throughout the year.

At the same time, a system-generated difference should not automatically be accepted as a confirmed tax liability. It may result from a genuine short payment, but it can also arise from timing differences, amendments, supplier reporting errors or differing accounting treatment.

Numerical mismatches should therefore be reconciled carefully, while legal disputes involving classification, exemption, reverse charge and credit eligibility require an independent examination of the statutory framework.

With GST scrutiny becoming progressively data-driven, transaction-level documentation and periodic reconciliation are likely to provide the strongest defence against avoidable demands, interest and penalties.

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