The Goods and Services Tax (GST) compliance in India has moved well beyond return filing. The GST investigation authorities have sharpened their tools, the portal now auto flags mismatches and the consequences of non-compliance have escalated from interest and penalty to blocking of GST credit, freezing of bank accounts, and in cases exceeding five crores, arrests. For listed companies, the disclosure obligation adds additional complexities with material litigation, contingent liabilities, and regulatory proceedings to be reported to exchanges.
The irony is that most of these risks are entirely preventable. They do not arise from fraud or evasion. They arise from gaps in internal controls, ERP misconfigurations, and vendor management failures that go undetected. A CEO does not need to understand the mechanics of GSTR-2B reconciliation. But a CEO who asks six questions once a quarter can ensure that the team managing these mechanics is doing so with discipline. Here are those six questions:
Are we working with credible, long-term suppliers?
The quality of your input tax credit is only as good as the quality of your supply chain. This is the most investigated category of GST cases today. Credit availed from non-existent or fly by night suppliers lead to denial of the entire credit, interest, penalty, freezing of bank accounts and criminal prosecution where the amount exceeds five crores. The risk does not always originate from intent. Large companies with thousands of vendors can inadvertently onboard shell entities, particularly in categories like manpower supply, security services, and transport where entry barriers are low.
The answer the CEO should expect is not reassurance but process. Does the company run a rigorous vendor onboarding programme covering penny drop verification, Aadhaar and PAN validation? Are these checks refreshed periodically for existing vendors? Is payment to vendors released only after confirming that the supplier has filed his GSTR-1 and GSTR-3B? If these controls are in place, the risk drops dramatically. If they are not, every rupee of credit claimed may be a potential liability.
Are we confident that every recipient of our credit is genuine?
This is the mirror image of the first question, and a newer form of investigation that the GST investigation authorities are pursuing with increasing vigour. If credit is passed to a non-existent or fictitious recipient, the penalty is equivalent to one hundred per cent of the tax involved. The defence rests on two foundations: systematic e-invoicing compliance which creates an auditable trail of every outward supply and structured customer verification (KYC checks) at onboarding. The CEO should ask whether such a process exists and whether all outward supplies are backed by valid e-invoices. In a regime where the recipient’s fraud can trigger investigation of the supplier, this is no longer someone else’s problem.
Is there any gap between GSTR-2B and GSTR-3B?
This is about the credit you claim. The GST portal auto generates a statement called GSTR-2B based on what your suppliers have reported and paid. If your team claims more credit than what this statement shows, the government sees a gap, and that gap invites scrutiny. It can lead to credit denial, interest, penalty, and in persistent cases, blocking of bank accounts.
The discipline is simple: never claim credit that does not appear in GSTR-2B. But enforcing this depends on whether your suppliers have filed correctly, which is why the vendor controls emphasized above matter so much. The CEO should ask whether the ERP system has built in checks that prevent credit claims beyond GSTR-2B. This must be a standing control embedded in the system.
Is there any gap between GSTR-1 and GSTR-3B?
If the previous question was about credit you claim, this one is about the tax you owe. GSTR-1 tells the government what you sold while GSTR-3B tells the government what you paid. If the two do not match, it means your buyers received credit on your supplies, but you did not pay the corresponding tax. The portal will automatically block your next return filing if this gap exceeds twenty-five lakhs. Beyond the block, the law provides for direct recovery of tax with interest. The CEO should insist on an automated reconciliation that flags any divergence before the return is filed.
Are all transactions covered by valid e-invoices and e-way bills?
E-invoicing is no longer optional for any significant business. Every invoice should have an Invoice Reference Number and every movement accompanied with an E-Way bill. A transaction without a valid e-invoice is an invalid transaction. Any goods movement without an e-way bill invites detention, penalty, and questions about the genuineness of the supply itself. The CEO should ask two things: first, whether the system is configured to prevent any goods movement without a corresponding e-invoice and e-way bill, and second, whether there is an adequate record of cancellations of e-invoices and e-way bills, because unexplained cancellations are themselves a red flag in any investigation.
Are our top products correctly classified?
Classification under GST determines the rate of tax. A product classified at five per cent that should have been at eighteen per cent creates a differential demand for every unit sold since the date of misclassification. These demands are retrospective, carry interest, and can run into years of accumulated liability. The good news is that following the 56th GST Council meeting, the government has settled many long-standing classification disputes through rate rationalisation, giving businesses more certainty than they had a year ago. That said, the CEO should still ask the tax team to confirm that at least the top five products by revenue have been reviewed for correct HSN classification and that the basis for classification is documented.
None of these six questions requires the CEO to be a tax expert. They require one quarterly conversation and the discipline to act on the answers. Every GST investigation that has ever disrupted a boardroom began with a question nobody thought to ask in time.
