Resolving GST Scrutiny and Tax Mismatches: Step-by-Step Guide

Worried about GST scrutiny and tax mismatch issues? We are here to help. 

Learn with us what kind of mismatches lead to scrutiny, what happens during the scrutiny and how you can resolve it. 

We also share best practices and tips to prevent further issues and protect your business from penalties.

Understanding Tax Mismatch Under GST

Tax mismatch under GST occurs when the tax details reported by your business don’t align with the data submitted by your suppliers, customers, or across your own GST returns. 

These discrepancies trigger compliance alerts and may lead to GST scrutiny. 

Reasons for Tax Mismatches Under GST: 

• Supplier/Customer Non-Compliance: If a supplier hasn’t filed their GSTR-1, your ITC claim won’t reflect in GSTR-2B. Similarly, if a customer misreports your GSTIN or invoice details, it creates a mismatch in sales records.
• Data Entry Errors: Simple mistakes like typos in GSTIN, invoice numbers, or taxable values can lead to mismatches. Incorrect application of tax rates can also cause discrepancies.
• Timing Differences: ITC claimed in one month based on an invoice from the previous month may mismatch if the supplier files their return later. Plus, timing differences arise when goods are shipped in one month but received in another.
• Reconciliation Gaps: May occur when the GSTR-3B summary doesn’t align with GSTR-1, or when the ITC claimed exceeds the eligible credit shown in GSTR-2B.
• Non-Compliant Suppliers: Suppliers with canceled or fake GSTINs, or those who haven’t settled their own GST dues, can cause issues with your tax claims.

Consequences of Unresolved Mismatches

Types of GST Mismatches Leading to Scrutiny

When the GST department detects inconsistencies (“mismatches”) between the tax details you’ve reported and data received from your suppliers, customers, or other returns, it often triggers GST Scrutiny. 

The GST system auto-flags mismatches using risk algorithms. High-risk patterns include:

• Large ₹ value mismatches
• Repeat discrepancies
• Transactions with non-compliant suppliers
• ITC claims without underlying invoices

Here are the most common types of Mismatches that leas to GST scrutiny

1. Invoice Mismatches

These occur when the details of invoices reported by the supplier/ customers and the recipient do not match. 

Inconsistent invoice data raises doubts about the genuineness of transactions and may lead to further investigation.

The scrutiny may lead to ITC denial, demand notices for short-paid tax.

Examples:

• Your supplier’s invoice value/tax in their GSTR-1 ≠ your purchase records.
• Your customer’s claimed purchase value ≠ your sales declaration in GSTR-1.
• Typos in GSTIN, invoice numbers, or tax rates.

2. Input Tax Credit (ITC) Mismatches

These mismatches arise when the ITC claimed by a business in GSTR-3B doesn’t match the eligible credit available as per GSTR-2B.

Incorrect ITC claims impact government revenue and are a key area of GST scrutiny.

It can lead to ITC reversal along with  interest and penalties of up to 100% of tax. 

Examples/ Causes:

• ITC claimed on invoices from suspended/cancelled GSTINs.
• No reversal of ITC for non-payment made to supplier within 180 days.
• Supplier not filing returns or not paying tax on the invoice.
• Excess ITC claimed compared to actual purchases

3. Turnover Mismatches

This happens when the turnover declared in various returns and records does not match.

This is a red flag for authorities as it suggests possible underreporting of sales or evasion of tax.

If found guilty you can face tax demand on unreported sales with  interest and penalties.

Examples:

• Sales in GSTR-1 ≠ Sales in GSTR-3B.
• Turnover in GST returns ≠ Income Tax filings.
• E-Way Bill value ≠ Sales declared in GSTR-1.

4. Tax Payment Mismatches

These occur when the tax paid does not align with the tax liability as per the returns filed.

Accurate tax payment ensures compliance and prevents penalties or notices. It can lead to demand for short-paid tax plus 18% p.a. interest and penalties.

Possible reasons:

• Underpayment or overpayment of tax
• Discrepancy between GSTR-1 and GSTR-3B tax liability
• Non-payment of interest on delayed tax payment

5. E-Way Bill Mismatches

These mismatches are between the details in E-Way Bills and GST returns. Mismatches raise red flags about unaccounted movement of goods or tax evasion.

The impact can be tax demand on unreported supplies and penalties plus shipment detention.

Examples:

• Value in e-Way Bill ≠ Invoice value in GSTR-1
• E-Way Bill generated but no corresponding sales invoice
• Multiple e-Way Bills for one invoice (or vice versa)

Facing GST Issues? Get Professional Assistance Now

How Mismatches Lead to GST Scrutiny?

Here’s an overview of how mismatches lead to GST Scrutiny:

1. Detection of Mismatches

The GST Network (GSTN) automatically compares data filed in GSTR-1, GSTR-3B, and GSTR-2A/2B to identify discrepancies.

2. Intimation to the Taxpayer

When a mismatch is detected, the department issues a notice (commonly in Form DRC-01A or ASMT-10), asking the taxpayer to explain or correct the discrepancy.

Taxpayers typically have 30 days to respond, though extensions may be granted at the officer’s discretion.

3. Evaluation of the Response

If the explanation is found satisfactory, no further action is taken.

If the explanation is rejected or not provided, the department may initiate audits, investigations, or determine tax dues under Sections 65, 66, 67, 73, or 74 of the CGST Act.

Key Steps for Handling & Resolving GST Scrutiny Under ITC Mismatch Issues

If you receive a GST scrutiny notice triggered by ITC mismatches, here’s what you need to do:

Step 1: Read & Decode the Notice 

• Read every detail in the notice (usually issued under Section 61 of the CGST Act)
• Identify the tax period, type of mismatch, and response deadline (typically 15–30 days)
• Note the format of reply and required documents
• Assign Ownership: Designate an internal lead (finance head/CA) + external advisor.
• Identify Tax period(s) & disputed invoices/ITC amounts and the Specific mismatch reason 
• Designate an internal lead (finance head/CA) along with an experienced external advisor like PKC Management Consulting 

Step 2: Gather Supporting Documents

Step 3: Draft a Point-by-Point Reply

Include the following:

• Mismatch details: “ITC of ₹X on Invoice No. — from Supplier —”
• Root cause: “Mismatch due to late filing by supplier / data entry error, etc.”
• Supporting documents: Invoices, payment proof, supplier’s return filing screenshot
• Resolution: Mention if return is amended or ITC reversed
• Request: Politely request closure if issue is resolved

Step 4: Submit Response via GST Portal

• Use Form ASMT-11 to upload reply and documents on the GST portal
• If physical submission is required, send via registered post with tracking
• Keep acknowledgment and screenshots for records

Step 5: Follow Up Promptly

• Check the GST portal weekly (see “Additional Notices” tab)
• Respond to any follow-up queries within 7 days
• Cooperate professionally with the officer

Step 6: Escalation & Appeals

If issued a demand notice (DRC-01):

• File an objection using Form DRC-06 within 30 days
• Request a hearing if necessary
• If not resolved, file an appeal within 3 months

How Can PKC Help With GST Scrutiny?

✅75% lesser chance of GST scrutiny selection

✅Guaranteed error-free GST compliance and documentation

✅ICAI registered CAs specialized in GST matters

✅Expert representation during department scrutiny proceedings

✅Proactive scrutiny risk assessment and mitigation strategies

✅End-to-end GST refund claims and appeals management

✅Real-time advisory on evolving GST regulations

✅Detailed compliance review preventing future scrutiny triggers

✅Complete hand holding from notice response to closure

Best Practices to Prevent GST Tax Mismatch Issues

Here are some concise, actionable best practices to prevent GST mismatches that shielfyour business from scrutiny, penalties, and working capital blocks:

Reconcile Early, Reconcile Often

Regular reconciliation is the key to avoiding GST notices and ITC losses. Check:

• GSTR-2B vs Purchase Register: Do this before filing GSTR-3B. Use the GST portal’s “Compare 2B with Books” tool or your accounting software.
• GSTR-1 vs GSTR-3B: Reconcile monthly. Ideally, auto-generate GSTR-1 from your books and compare with your 3B summary.
• e-Way Bills vs GSTR-1: Check weekly using the NIC portal to ensure all shipments match reported sales.
• Books vs GST Returns: Do a quarterly check between your trial balance and GSTR-1/3B totals (ITC, taxable value, tax paid).

Tip: Never file GSTR-3B unless your GSTR-2B is fully reconciled.

Efficient Supplier Management

• GSTIN Verification: Check your suppliers’ GST status monthly on the GST portal. Avoid transacting with suppliers marked as “Suspended” or “Cancelled.”
• Supplier Compliance: Monitor filing habits of key vendors. If they frequently miss GSTR-1 or GSTR-3B deadlines, consider blacklisting them.
• Timely Payments: Ensure payments to suppliers are made within 180 days. Delays can trigger ITC reversal under Rule 37. Use software to track and flag overdue payments.

Automate to Prevent Errors

• GST-Ready Accounting Software: Tools like Tally or Zoho validate invoice details (GSTIN, HSN, rates) and sync returns automatically.
• AP Automation Tools: Auto-match your purchase invoices with GSTR-2B. Get alerts for mismatches in real time.
• E-Invoicing Integration: Auto-populate GSTR-1 using e-invoices, avoid manual errors.
• GSP Services: Use GST Suvidha Providers to auto-reconcile returns and track supplier compliance via APIs.

Strong Documentation Practices

• Invoice Validations Ensure every invoice has the correct GSTIN, HSN codes (6 digits if turnover > ₹5 Cr), place of supply, and applicable tax rate.
• Digital Records: Keep digital copies of invoices, challans, and payment proofs for at least 6 years. Cloud storage with OCR makes retrieval easy during audits.

Proactive Compliance Habits

• File Returns Early: Submit GSTR-1 a few days before the deadline. This gives your customers time to reconcile their ITC.
• Amend Quickly: Fix any mistakes in the next return using amendment tables in GSTR-1 or in the annual returns (GSTR-9/9C).
• Monthly Health Checks: Use the GST portal’s Returns Dashboard to identify mismatches early and avoid notices.

🚨 High-Risk Areas & Prevention Tips

• ITC Mismatch: Claim ITC only if the invoice appears in GSTR-2B (unless provisional ITC is allowed).
• Unbilled Turnover: Reconcile e-Way Bills with your sales invoices to ensure all shipments are properly invoiced.
• Incorrect Tax Payment: Reconcile GSTR-1 with 3B before paying tax in cash.
• Vendor Fraud: Always verify new vendors—check PAN, address, and filing history before onboarding.

Frequently Asked Questions

1. What is a GST scrutiny notice?

A GST scrutiny notice is an official letter from the tax officer asking you to explain errors or mismatches in your GST returns. It usually comes under Section 61 of the CGST Act.

2. How do I reply to a GST scrutiny notice?

You must reply on the GST portal with a clear explanation and supporting documents. Make sure you submit your reply within the time mentioned in the notice to avoid penalties.

3. Can I ignore a GST scrutiny notice?

No, ignoring a scrutiny notice can lead to audits, penalties, or cancellation of your GST registration. Always reply on time and cooperate with the tax officer.

4. Why does ITC mismatch happen under GST?

ITC mismatch happens when the Input Tax Credit you claim does not match what your supplier filed in their returns. It usually comes from missing invoices or wrong entries.

5. How long does a GST scrutiny take?

Usually the officer gives you 15 days to reply to a notice. After that, they may take 1–3 months to close the scrutiny depending on your reply.

6. What documents should I keep ready for GST scrutiny?

You should have all invoices, payment proofs, bank statements, and reconciliation sheets. If you have claimed ITC, make sure you have your supplier’s return data as well.

7. Can I get professional help for GST scrutiny?

Yes, a tax consultant or CA  from experienced firms like PKC Management Consulting can help you reply correctly. This is highly recommended to avoid mistakes and penalties.