For listed companies, disclosure obligations add another layer of complexity, with material litigation, contingent liabilities, and regulatory proceedings required to be reported to exchanges.
The irony is that most of these risks are preventable. They do not usually arise from fraud or evasion, but 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 the team handling these mechanics is doing so with discipline.
Here are those six questions:
1. Are we working with credible, long-term suppliers?
The quality of your input tax credit is only as strong as your supply chain. This is one of the most investigated categories of GST cases today. Credit availed from non-existent or fly-by-night suppliers can lead to denial of credit, interest, penalties, freezing of bank accounts, and criminal prosecution where the amount exceeds ₹5 crore.
The risk does not always stem from intent. Large companies with thousands of vendors can inadvertently onboard shell entities, particularly in sectors like manpower supply, security services, and transport, where entry barriers are low.
The CEO should expect not reassurance, but process. Is there a rigorous vendor onboarding programme covering penny-drop verification, Aadhaar and PAN validation? Are checks periodically refreshed for existing vendors? Are payments released only after confirming that the supplier has filed GSTR-1 and GSTR-3B?
If these controls exist, risk drops dramatically. If not, every rupee of credit claimed may become a potential liability.
2. Are we confident that every recipient of our supplies is genuine?
This is the mirror image of the first question — and a growing focus area for GST investigators. If credit is passed on to a non-existent or fictitious recipient, the penalty can equal 100% of the tax involved.
The defence rests on two pillars: systematic e-invoicing compliance that creates an auditable trail of outward supplies, and structured customer verification (KYC) at onboarding.
The CEO should ask whether such processes exist and whether all outward supplies are backed by valid e-invoices. In a regime where a recipient’s fraud can trigger scrutiny of the supplier, this is no longer someone else’s problem.
3. Is there any gap between GSTR-2B and GSTR-3B?
This concerns the credit you claim. The GST portal auto-generates GSTR-2B based on what suppliers have reported. If your team claims more credit than what appears in GSTR-2B, the gap invites scrutiny — potentially leading to denial of credit, interest, penalties, and, in persistent cases, blocking of bank accounts.
The discipline is straightforward: never claim credit that does not appear in GSTR-2B. But enforcement depends on supplier compliance, which is why vendor controls matter.
The CEO should ask whether the ERP system has in-built checks to prevent credit claims beyond GSTR-2B. This must be a standing system-level control.
4. Is there any gap between GSTR-1 and GSTR-3B?
If the previous question is about credit claimed, this one concerns tax payable. GSTR-1 reflects what you sold; GSTR-3B reflects what you paid. A mismatch suggests buyers received credit, but the corresponding tax was not paid.
The portal can automatically block return filing if this gap exceeds ₹25 lakh. Beyond that, the law allows for direct recovery of tax with interest.
The CEO should insist on automated reconciliation that flags divergences before returns are filed.
5. Are all transactions covered by valid e-invoices and e-way bills?
E-invoicing is mandatory for most significant businesses. Every invoice must carry an Invoice Reference Number, and every goods movement must be supported by an e-way bill.
A transaction without a valid e-invoice is invalid. Goods movement without an e-way bill can lead to detention, penalties, and scrutiny of the transaction’s genuineness.
The CEO should ask whether systems prevent goods movement without corresponding documentation — and whether cancellations of e-invoices and e-way bills are monitored, as unexplained cancellations are red flags in investigations.
6. Are our top products correctly classified?
GST classification determines the applicable tax rate. A product taxed at 5% that should have been taxed at 18% creates a differential liability for every unit sold since the date of misclassification. These demands are retrospective and carry interest.
Following the 56th GST Council meeting, several long-standing classification disputes have been addressed through rate rationalisation, offering greater clarity. Even so, CEOs should ask whether at least the top five revenue-generating products have been reviewed for correct HSN classification, and whether the basis for classification is documented.
None of these six questions requires the CEO to be a tax expert. They require one disciplined quarterly conversation — and action based on the answers.
Every GST investigation that disrupts a boardroom typically begins with a question no one thought to ask in time.
(The writer is a former IRS officer. The views expressed are personal.)
