GST scrutiny tightens: CA explains why documentation trails are now deciding credit eligibility

Businesses facing Goods and Services Tax (GST) scrutiny are being increasingly asked to prove the authenticity of their transactions through detailed documentation, rather than relying solely on invoices or explanations, according to chartered accountant Nitin Kaushik.  

In a post on X (formally twitter), Kaushik highlighted that notices issued under Sections 74 and 74A of the GST framework frequently centre on a fundamental verification: whether goods were actually received, paid for, and genuinely traded.  

From technical disputes to transaction validation  

Kaushik noted that tax authorities are no longer beginning assessments with complex legal questions. Instead, they are examining the factual trail behind Input Tax Credit (ITC) claims — seeking confirmation that a transaction moved through every stage of business reality, from order placement to payment and accounting.  

He explained that ITC eligibility today depends on whether documents collectively tell a consistent story of intent, movement of goods, financial settlement, and statutory reporting.  

Documentation chain now critical

According to Kaushik, authorities typically expect businesses to maintain a clear sequence of records:

• Pre-purchase evidence: Purchase orders, quotations, and communication trails demonstrating intent to procure goods or services.  
• Tax and transport records: Valid GST invoices supported by e-way bills and transporter documents to establish physical movement of goods.  
• Receipt and inventory logs: Goods Receipt Notes (GRNs) and stock register entries confirming delivery and use.  
• Banking proof: Payments made through traceable banking channels showing commercial substance.  
• Return reconciliation: Matching disclosures in supplier filings (GSTR-1 and GSTR-3B) and reflection in the recipient’s GSTR-2B.  
• Accounting consistency: Proper ledger entries and purchase records aligning with all other documentation.

He stressed that when books of accounts, logistics records, GST filings, and bank statements align, the credibility of an ITC claim strengthens significantly.  

Due diligence seen as key safeguard  

Kaushik also pointed out that the law does not intend to penalise bona fide buyers if they can demonstrate due diligence — showing they received goods, made payments, and maintained compliance checks — even if a supplier later defaults.  

The growing reliance on data matching and audit trails under GST means routine operational paperwork has become a critical defence during tax scrutiny.  

“In today’s scrutiny environment, ITC doesn’t survive on arguments — it survives on documentation and transaction trails,” Kaushik said, urging businesses to treat compliance records as a strategic asset rather than a procedural formality.