Vendor Compliance Review

It is an ongoing check to confirm that the vendors you buy from are actually filing their GST returns and remain validly registered — because under current rules, your ability to claim credit for the GST you paid them depends entirely on whether they report that sale correctly on their end. It is not a one-time check; it is a recurring discipline, typically run every filing period, alongside a one-time screening step whenever a new vendor is onboarded.

Since the removal of the provisional 5% additional ITC buffer effective 1 January 2022, Section 16(2)(aa) of the CGST Act read with Rule 36(4) restricts your ITC claim to invoices that actually appear in your auto-populated GSTR-2B statement. GSTR-2B is generated from your suppliers' GSTR-1 filings. If your vendor does not file GSTR-1, files it late, or misreports the invoice, that invoice simply will not show up in your GSTR-2B — and you cannot claim ITC on it, regardless of how genuine the purchase was or how promptly you paid the vendor.

GSTR-2A is a dynamic, continuously updated statement that reflects supplier filings as and when they happen during a period — it can change even after the period has closed if a supplier files late. GSTR-2B is a static, month-end snapshot generated once per period (by the 14th of the following month) that reflects only invoices the supplier had filed by that cut-off, and it does not change thereafter for that period. ITC eligibility under Rule 36(4) is determined by reference to GSTR-2B specifically, because it gives a fixed, auditable figure rather than a constantly shifting one.

Rule 37A addresses the situation where you claimed ITC based on an invoice that did appear in an earlier GSTR-2B, but your supplier then failed to actually file the corresponding GSTR-3B (paying the tax) by 30 November following the end of that financial year. In that case, you are required to reverse the ITC, along with interest under Section 50, in your return for the period ending that 30 November (or shortly after, per the prescribed timeline). If the supplier later files the pending GSTR-3B, you become eligible to re-claim the reversed credit in the period in which their filing is reflected.

The GST portal (gst.gov.in) provides a public 'Search Taxpayer' tool where anyone can enter a GSTIN and see its current status — active, cancelled, or suspended — along with the taxpayer's filing status for recent periods. This should be checked before onboarding any new vendor, and periodically re-checked for existing vendors, since registration can be cancelled by the department at any time without your knowledge as the recipient.

Vendors with turnover up to ₹5 crore in the preceding financial year can opt into the Quarterly Return Monthly Payment (QRMP) scheme — filing GSTR-1 and GSTR-3B quarterly while paying estimated tax monthly. If you do not know a vendor is on QRMP, their invoice will simply not appear in your GSTR-2B in the first two months of the quarter — which looks identical to a non-filer at first glance, but is not actually a compliance problem. Misreading this distinction leads to unnecessary vendor escalation and wasted effort chasing a supplier who is, in fact, filing correctly on their own schedule.

The reversed ITC amount itself is the primary exposure, plus interest under Section 50(3) of the CGST Act — currently 18% per annum — computed on the credit that was wrongly availed and utilised, from the date of utilisation until the date of reversal. Interest applies only where the credit was both availed and actually utilised to pay output tax liability; credit that was availed but never utilised does not attract interest under the current, amended position. PNPC computes the precise interest exposure for every flagged invoice rather than applying a rule of thumb.

A vendor's self-declaration or a one-time compliance certificate has some onboarding value, but it is not a substitute for ongoing monitoring. A vendor's compliance can deteriorate at any point after the certificate is issued — cash-flow stress, internal accounting problems, or a genuine oversight can cause a previously reliable vendor to start missing filing deadlines. Only a recurring GSTR-2B reconciliation actually reflects real-time filing behaviour rather than a point-in-time promise.

First, verify the mismatch is genuine and not a QRMP timing issue or a data-entry difference in your own purchase register. If genuine, reach out to the vendor with the specific invoice details and request they check and correct their GSTR-1 filing for that period — most corrections can be made in a subsequent period's amendment. Track the invoice against the Rule 37A annual deadline in case the vendor does not resolve it promptly, since that determines whether you must proactively reverse the credit before the department flags it.

Indirectly, yes. Where your vendor is above the mandatory e-invoicing turnover threshold under Rule 48(4), their B2B invoices to you must carry a valid IRN (Invoice Reference Number) generated through the Invoice Registration Portal. An invoice without a valid IRN, where e-invoicing was mandatory for that vendor, is not treated as a valid tax invoice — which can itself block your ITC independent of the GSTR-2B question. As part of vendor screening, PNPC checks whether e-invoicing applies to significant vendors and flags any non-compliant invoicing pattern.

The review scope scales with the number of active vendors and transaction volume, not a fixed vendor cap. For a business with a small, concentrated vendor base, the monthly cycle is straightforward. For a business with hundreds of vendors across multiple states, PNPC prioritises by rupee value first — the vendors representing the largest share of your ITC claim receive the most detailed attention, while a lighter-touch registration check covers the long tail of smaller, lower-value vendors.

This usually comes down to a timing or classification difference — the vendor may have filed the invoice under a different GSTIN of yours (in a multi-state business), reported it in a different tax period than expected, or made a data entry error in the GSTIN, invoice number, or value. PNPC reconciles the specific invoice details on both sides — your purchase register and the vendor's stated filing — to identify exactly where the discrepancy originates, rather than leaving it as an unresolved back-and-forth.

Composition dealers do not claim Input Tax Credit at all under the scheme, so the ITC-protection rationale for vendor compliance review does not directly apply. However, a composition dealer should still perform a basic registration-status check on significant vendors as general commercial diligence, and should track this closely if they are considering a switch to the regular scheme, since past vendor compliance will start to matter immediately once that switch takes effect.

Finance typically owns the reconciliation and reversal-tracking mechanics, but procurement owns the decisions that actually reduce risk going forward — whether to onboard a new vendor, whether to continue with a deteriorating one, and what payment terms to apply. A Vendor Compliance Review is only as effective as the link between these two functions; a risk tier that finance produces but procurement never sees or acts on delivers limited value.

This is a genuine business trade-off, not a purely compliance decision, and PNPC does not make sourcing decisions on a client's behalf. What we do is quantify the exposure clearly — the ITC value at risk, the interest cost if reversal becomes necessary, and the trend of the vendor's compliance over recent periods — so that the business can make an informed commercial decision, whether that is continuing the relationship with tighter payment terms, seeking a second source, or accepting the risk with eyes open.

Yes. Refund claims on account of export under LUT (zero-rated supply without payment of integrated tax) or on account of inverted duty structure are scrutinised closely by the department, and unresolved input-side ITC mismatches are a common ground for refund queries or partial rejection. A clean, well-documented vendor compliance position materially strengthens a refund application and reduces the likelihood of a drawn-out query cycle.

Beyond the tax invoice and proof of payment, you should retain: the GSTR-2B extract showing the invoice reflected for the relevant period, your purchase register entry, evidence of receipt of goods or services (delivery challan, GRN, service completion confirmation), and — where relevant — evidence of any vendor outreach undertaken in case of an earlier mismatch that was subsequently resolved. A documented vendor compliance history materially strengthens this position by showing the mismatch, if any, was actively managed rather than ignored.

The baseline phase — vendor master mapping, registration-status verification for all active vendors, and the first full GSTR-2B reconciliation cycle — typically takes 3–4 weeks depending on vendor count, data quality in your existing accounting system, and how many prior periods need to be reviewed to establish a clean starting point. After that, the review settles into a routine monthly (or QRMP-aligned quarterly) cadence.

Either approach works, and PNPC adapts to what the client prefers. Some clients want PNPC to draft the communication and have their own procurement or finance team send it, preserving the direct commercial relationship. Others — particularly where the vendor relationship is more transactional or where a firmer, more formal tone is needed — ask PNPC to send the outreach directly under an agreed protocol. We agree this upfront as part of the engagement scope.

PNPC scopes this as a recurring retainer, priced based on vendor count, transaction volume, number of GSTINs/states involved, and the depth of monitoring required. The exact fee is confirmed in writing before the engagement begins. Businesses with a smaller, well-managed vendor base pay considerably less than those with a large, fragmented supplier list requiring extensive individual tracking.

In most cases, no new system is required. PNPC works with the data your accounting software or ERP already produces — purchase registers, vendor masters, and GSTR-2B downloads — and builds the reconciliation and risk-tiering process around your existing setup. For businesses with high transaction volumes seeking a more automated matching tool, PNPC can advise on suitable GST reconciliation software as a separate, optional recommendation, but it is not a prerequisite to start the review.

A suspended GSTIN typically arises during pending cancellation proceedings or certain compliance defaults, and the taxpayer is generally restricted from making further outward supply with tax charged during suspension, though the exact restrictions depend on the specific circumstances of the suspension. A cancelled GSTIN means the registration has been terminated — either voluntarily surrendered by the taxpayer or cancelled by the officer — and the person is no longer a registered taxable person from the effective date of cancellation. Both statuses are red flags requiring immediate procurement attention, though cancellation is the more definitive and serious of the two.

Each of your GSTINs has its own separate GSTR-2B, and a vendor may supply to you from different states under different GSTINs of their own. PNPC consolidates the reconciliation across all your GSTINs into a single vendor risk view, so a supplier who is reliable in their dealings with your Tamil Nadu GSTIN but inconsistent with your Karnataka GSTIN is flagged clearly, rather than the risk being diluted or missed by reviewing each state in isolation.

If your Indian purchases flow through an Indian GST-registered entity (branch, subsidiary, or liaison arrangement with appropriate registration), the same ITC protection logic applies fully to that Indian entity's GST position. PNPC's presence in both Chennai/Bangalore/Hyderabad and Dubai allows us to coordinate the Indian-side vendor compliance review with your UAE finance team without needing to brief two separate firms on the same supply chain.

Yes, as a secondary check. Incorrect HSN/SAC codes on a vendor's invoice can cause classification mismatches even when the invoice value and tax amount otherwise reconcile correctly, and can create downstream issues for your own GSTR-1 reporting if you rely on vendor-provided codes for onward supply classification. PNPC flags any vendor whose invoices show inconsistent or clearly incorrect HSN/SAC usage as part of the broader review, even though the primary focus remains registration status and filing behaviour.

Purchases subject to reverse charge from unregistered persons fall outside the GSTR-2B matching mechanism in the same way, since the tax liability and the corresponding ITC claim both rest with you as the recipient rather than depending on a supplier's filing. PNPC reviews these separately to confirm RCM tax is being self-invoiced, paid, and the corresponding ITC correctly claimed in your own returns — this is a different control point from vendor filing compliance, but it is closely related and easy to overlook if the vendor review is scoped too narrowly around GSTR-2B alone.

A gradual slide in filing timeliness — invoices that used to appear in GSTR-2B on the first cut-off now consistently appearing only in a later period's GSTR-2A before eventually reflecting in GSTR-2B — is often the earliest signal of a vendor under cash-flow or operational stress. PNPC tracks this trend vendor-by-vendor rather than only reacting once an invoice fails to appear at all, since the trend line gives your procurement team a meaningfully earlier window to act.

A generic reconciliation tool is genuinely useful for the mechanical matching step, and PNPC does not discourage clients from using one. What a tool alone does not provide is the CA judgement layer — knowing which mismatch is a genuine risk versus a QRMP timing artefact, drafting outreach that vendors actually respond to, tracking the Rule 37A deadline with the specific interest computation, and presenting a defensible position if the department raises a query. We are frequently engaged specifically to sit on top of an existing reconciliation tool and provide exactly this judgement layer.

MSME registration under the MSME Development Act, 2006 (now tracked through Udyam Registration) is a separate framework from GST compliance and does not itself guarantee GST filing discipline — a vendor can be validly Udyam-registered and still be inconsistent with GST filings, particularly smaller MSMEs with limited in-house accounting support. That said, the MSME angle is relevant in a different way: the MSME Development Act imposes its own payment-timeline obligations on buyers (payment within the period agreed, or 45 days by default, failing which compound interest applies), so any payment-hold policy tied to GST risk tiering must be structured carefully to avoid inadvertently breaching MSME payment-timeline obligations to a registered MSME vendor.

E-way bills are generated for the movement of goods above the prescribed value threshold and are a useful cross-check for goods-based vendors — a pattern of e-way bills generated without a corresponding invoice later appearing in GSTR-1/GSTR-2B can be an early indicator of a vendor with genuine filing delays or, in rarer cases, more serious compliance concerns. PNPC includes e-way bill cross-referencing as a supplementary check for significant goods vendors, alongside the primary GSTR-2B reconciliation.

TDS under Section 194Q (on purchase of goods, applicable to buyers with turnover above the prescribed threshold) and TCS under Section 206C(1H) operate under the Income-tax Act framework and apply independently of a vendor's GST filing status — a vendor's GST non-compliance does not exempt you from your own TDS/TCS obligations on that purchase. PNPC treats these as parallel compliance streams for the same vendor relationship and ensures neither is overlooked while attention is focused on the GST-side risk.

The GST law itself does not give the recipient a direct statutory remedy against the supplier for ITC lost due to their non-filing — the reversal obligation and any interest cost sit with you as the recipient under the current framework. Commercial recourse is contractual: a well-drafted purchase order or vendor agreement can include an indemnity clause requiring the vendor to compensate you for any ITC loss and interest cost directly attributable to their filing default. PNPC advises on drafting such clauses, though enforcing them commercially still depends on the vendor's willingness and ability to pay.

Vendor master mapping and baseline registration-status verification; filing-frequency classification for every vendor; the recurring monthly (or QRMP-aligned quarterly) GSTR-2B reconciliation; vendor risk tiering and a compliance dashboard; structured outreach drafting for flagged vendors; new-vendor onboarding screening on an ongoing basis; Rule 37A annual deadline tracking with interest computation; re-claim tracking once a vendor files late; and quarterly management review sessions. The exact scope and fee are confirmed in writing before the engagement begins.