Retrospective GST Cancellations: Why You Need a Vendor Validation Framework Today

🧨 The Trigger:

With GST authorities cracking down on shell companies and fake invoice frauds, thousands of GST registrations are being cancelled retrospectively, sometimes dating back to 1st July 2017.

📉 What’s the risk?Businesses that dealt in good faith, availed valid ITC, and made full payments are suddenly being told to reverse ITC, simply because the supplier’s GSTIN was later deemed invalid.

🧠 Can we monitor every vendor constantly? Not easily. But we can build a system.

✅ Vendor Health Check: Periodic Validation Framework

Here’s a detailed format you can adopt for quarterly or half-yearly vendor validation:

1️⃣ Basic GSTIN Validation

Field	Validation Source
GSTIN Active / Cancelled	GST Portal
Legal Name & Trade Name	GST Portal
Nature of Business	Cross-check with invoice line items
Registration Date	Identify retro-cancelled risk

2️⃣ Compliance Scorecard (Last 6 Months)

Parameter	Benchmark	Source
GSTR-1 Filing Status	Filed timely	GST Portal / ASP/GSP software
GSTR-3B Filing Status	No default	GST Portal / GSP/Compliance tool
E-invoicing applicability	Correctly followed	E-invoice Portal/ERP system
E-way bill compliance	Matches movement	NIC portal/EWB dashboard

3️⃣ Risk Tagging Vendors

Risk Category	Criteria	Action
✅ Green	Fully compliant for 6+ months	Continue as-is
⚠️ Amber	1–2 late filings or small mismatch	Auto-alert and review manually
🔴 Red	Non-filing, mismatch in returns, or GSTIN flagged	Hold transactions, issue debit note/RCM

4️⃣ Automated Validation Tools

Use GSP (GST Suvidha Providers) or ASP (Application Service Providers) tools to:

• Set auto-reminders for GSTR filings

• Check vendor PAN-linked GSTIN status

• Generate compliance dashboards

5️⃣ Documentation & Audit Trail

Keep PDFs/screenshots of:

• GSTIN status checks

• Filed returns and invoices

• Email reminders or follow-ups to non-compliant vendors

🗂️ This helps during assessments and ITC defense.

🚨 Practical Tip:

Even a perfectly valid ITC can be denied if the supplier’s GSTIN was cancelled with retrospective effect.Hence, treat vendor validation as a control mechanism, not just a one-time KYC.

📌 Final Thoughts:

It’s unrealistic to check hundreds of vendors manually every month. But with:

• quarterly validation cycles,

• risk-based tagging, and

• automation tools,

you can significantly reduce the threat of ITC clawbacks due to someone else’s non-compliance.

💬 Want to Discuss This?

We help businesses set up custom Vendor Compliance Frameworks under GST.