Most GST audit and scrutiny queries on input tax credit come down to one question: can you prove each condition for the credit you took? Having the evidence organised before the notice arrives is the difference between a one-page reply and weeks of searching. This checklist maps each condition to the documents that support it. It is a working aid, not legal advice; complex disputes need a GST professional.
1. The conditions in Section 16
| Condition | Where it comes from | Evidence to keep |
|---|---|---|
| You hold a tax invoice or debit note | Section 16(2)(a), Rule 36 | Invoice with all Rule 46 particulars, e-invoice IRN and QR code where the supplier is covered by e-invoicing |
| Invoice is reflected in GSTR-2B | Section 16(2)(aa), Rule 36(4) | GSTR-2B download for the month and your reconciliation |
| Credit is not restricted in GSTR-2B | Section 16(2)(ba) | GSTR-2B "ITC available" / "not available" sections |
| Goods or services were received | Section 16(2)(b) | GRN, e-way bill, delivery challan, lorry receipt, service completion certificate, user sign-off |
| Tax was actually paid to the government by the supplier | Section 16(2)(c) | Supplier's GSTR-3B filing status on the portal; vendor confirmation for large amounts |
| You have filed your own return | Section 16(2)(d) | GSTR-3B acknowledgement |
| Supplier paid within 180 days | Second proviso to Section 16(2), Rule 37 | Payment ledger with bank references; reversal entries for anything unpaid after 180 days |
| Claimed within the time limit | Section 16(4) | GSTR-3B of the month of claim (no later than 30 November of the following year or the annual return date, if earlier) |
| Credit is not blocked | Section 17(5) | Expense classification: motor vehicles, food and catering, club membership, works contracts for immovable property and other blocked items |
2. Build the file every month, not when the notice comes
- Save the GSTR-2B Excel and your reconciliation with the GSTR-3B working.
- Keep a register of credits claimed later than the invoice month and why.
- Record reversals: Rule 37 (non-payment within 180 days), Rule 37A (supplier did not file GSTR-3B), Rule 42 and 43 (common credits for exempt supplies).
- For capital goods, keep the asset tag and installation evidence alongside the invoice.
- For services, keep the contract or purchase order and proof of completion, not just the invoice.
3. The queries that come up most
"ITC in GSTR-3B is higher than GSTR-2B"
Show the reconciliation by month and by supplier. Typical valid reasons are credits of earlier months that appeared in GSTR-2B later, and timing differences at year end. Credits taken without a GSTR-2B reflection after 1 January 2022 are hard to defend and are often best reversed with interest before the dispute escalates.
"Supplier's registration was cancelled" or "supplier did not pay tax"
Produce the invoice, proof of receipt and proof of payment through banking channels. Show the supplier's registration status on the date of the invoice. Where credit is denied because of the supplier's default, there is extensive litigation; take professional advice early.
"Credit on blocked items"
Map each expense GL to eligible or blocked in a simple matrix, approved once a year. It turns a line-by-line argument into a policy discussion.
4. Reply checklist
- Read the notice for the exact period, amount and section invoked; note the reply deadline.
- Reconcile the department's figure to yours before writing anything.
- Answer each allegation separately, with an annexure of evidence for each.
- Pay undisputed amounts with interest to limit penalties, and say so in the reply.
- Keep copies of everything filed and the acknowledgement.
Running the GSTR-2B reconciliation every month gives you the core of this evidence automatically.
Related reading
This article is general information for finance professionals, not legal, tax or accounting advice for your specific situation. Laws, rules and standards change; check the current text and consult a qualified professional before acting.