GST Department Seeking More To Prove the Authenticity of their transactions via these Documents

GST Department Seeking More To Prove the Authenticity of Their Transactions via These Documents

Over the last few years, GST scrutiny has visibly shifted from technical disputes to one core question – “Did this transaction really happen in the way you reported it?” As a result, departments are increasingly asking businesses to prove the authenticity of their purchases and supplies through a robust documentation trail, and not merely by producing tax invoices.

This change has a direct impact on Input Tax Credit (ITC) eligibility, cash flows, and the way bookkeeping and compliance are handled in every serious business.

From Legal Arguments to Transaction Reality

Earlier, GST disputes often started with legal interpretations – classification, rate, place of supply, time of supply etc. Now many notices issued under sections dealing with demand and recovery focus first on a more basic verification: whether the underlying supply actually took place, whether goods or services were genuinely received, and whether payment and reporting were consistent with that story.

The department is effectively testing “business reality” behind ITC claims by asking:

• Was there an intention to buy?
• Was there actual movement or provision of goods/services?
• Was consideration paid through traceable banking channels?
• Do GST returns and books of account reflect the same transaction?

If the answers are not convincingly supported by documents, credit eligibility itself is questioned, irrespective of how sound the legal arguments may be.

The Documentation Chain Now Decides ITC

In the current environment, ITC no longer survives only on a supplier’s invoice – it survives on a complete documentation chain that tells a consistent story from start to finish. Broadly, officers now expect to see the following links in that chain:

1. Pre‑purchase and intent documents
   • Purchase orders, work orders, quotations and emails showing the intent to procure.​
   • Correspondence with vendors on price, quantity, scope and timelines.​
2. Tax and transport records
   • Valid GST tax invoices meeting section 31 and Rule 46 requirements (names, GSTINs, invoice number and date, HSN/SAC, value, tax breakup, etc.).
   • E‑way bills and transporter documents, LR/GR, delivery challans to evidence physical movement of goods.
3. Receipt and inventory evidence
   • Goods Receipt Notes (GRNs), in‑ward registers and gate entry records confirming that goods reached the premises.​
   • Stock registers and consumption records demonstrating subsequent use or sale.​
4. Banking and payment trail
   • Payments through banking channels (RTGS/NEFT/cheques, UPI), along with bank statements and payment advices.​
   • Matching of invoice values with payment records and, where applicable, TDS/TCS entries.
5. GST return matching and reconciliations
   • Proper reflection of the supplier’s invoices in GSTR‑1 and tax payment in GSTR‑3B.
   • Auto‑population and matching in the recipient’s GSTR‑2B and availment in GSTR‑3B.
   • Periodic reconciliations to address mismatches and follow up with vendors in time.
6. Accounting and ledger consistency
   • Purchase ledgers, vendor ledgers and expense heads aligning with GST and banking data.
   • Proper documentation in trial balance and financial statements supporting the scale and nature of business operations.​

When all these records – legal, logistical, financial and statutory – align, the credibility of the ITC claim increases significantly and the risk of denial reduces.

Why Departments Are Tightening Scrutiny

There are several reasons why officers are insisting on deeper documentation and not just invoices:

• Curbing fake invoicing and paper credit: Multiple cases have exposed fake supplier networks created only to pass on ITC without real supply of goods or services.
• Data‑driven risk flags: With integrated data from GSTN, e‑way bill portal, DGARM and analytics systems, the department can now identify abnormal patterns and target high‑risk taxpayers for scrutiny.
• Shift towards trail‑based verification: Technology allows cross‑verification of transactions across suppliers, recipients, transporters and banks, so documentation trails have become central to assessments.
• Policy focus on compliance‑led revenue growth: The Government has clearly indicated that improved compliance and plugging leakages will be key drivers of tax collection.

In this backdrop, even genuine businesses are being asked to produce more records than ever before to substantiate routine ITC claims.

Due Diligence: Shield for Genuine Buyers

Importantly, the law and judicial view are evolving around the idea that bona fide buyers who have done reasonable due diligence should not be harshly penalised for a supplier’s default. However, that protection is practically available only when the buyer can show that they:

• Actually received the goods or services.
• Paid the consideration through normal banking channels.
• Ensured that the supplier was active and compliant at the time of transaction (e.g., GST registration valid, no obvious red flags).
• Maintained a proper documentation trail and carried out periodic reconciliations.

In other words, due diligence today is not just “good practice” – it is a strategic defence in any future scrutiny.

Practical Steps for Businesses to Strengthen Documentation

Businesses can respond to this tightening environment by institutionalising documentation and controls rather than reacting only when a notice arrives.

Some practical steps:

1. Design a standard documentation checklist for every purchase and major expense, covering pre‑purchase to payment and filing.
2. Digitise and centralise records – invoices, e‑way bills, GRNs, emails, contracts and bank proofs should be easily retrievable for at least the statutory retention period.
3. Strengthen vendor onboarding and monitoring by verifying GST registration, compliance history and regularly reviewing whether suppliers are filing returns and paying tax.
4. Automate reconciliations of purchase registers with GSTR‑2B and follow up swiftly on missing or mismatched invoices.
5. Train finance, logistics and procurement teams so that documentation is captured correctly at each step and not reconstructed later under pressure.​
6. Respond to scrutiny notices systematically, enclosing a structured documentation set that clearly traces each transaction, instead of sending random bundles of documents.

Conclusion: Documentation is the New Currency of GST

The message emerging from recent scrutiny trends is clear – in GST, documentation is the new currency of credibility. ITC today does not depend only on what is written on the invoice, but on whether a complete and consistent documentation trail proves that the transaction actually happened as claimed.

For compliant taxpayers, this is both a challenge and an opportunity: a challenge because the paperwork burden is higher, but an opportunity because robust records can decisively protect genuine credits and reduce litigation exposure. Businesses that treat documentation as a strategic asset, rather than a mere formality, will be far better placed to face the tightening scrutiny of the GST department.

CA Ankit Gulgulia (Jain)

FCA, CWM (AAFM-US), CBV, CIFRS, R-ID, B.COM (H), RV* (IBBI)

Practising Chartered Accountant in Delhi NCR Since 2011. He can be contacted at ankitgulgulia@gmail.com or +91-9811653975.