Cosmetics Seller - GST Compliance Crisis

Client Profile

• Business: Skincare and cosmetics products
• Platform: Amazon, Nykaa, Flipkart
• Stage: 3 years old, ₹5 Cr annual revenue
• Crisis: Multiple GST notices and demands

The Challenge

Meera had built a successful cosmetics brand with healthy sales across major platforms. However, her bookkeeping was informal and GST compliance was inconsistent:

Problems Accumulated:**

• ₹18 lakhs GST demand notice for:
  • Wrong HSN code classification (₹8L demand)
  • Input tax credit (ITC) mismatches (₹6L demand)
  • Late filing penalties & Interesr (₹4L demand)
• GSTR-2A vs. GSTR-3B reconciliation never done
• Claimed ITC on personal expenses (car, phone)
• Missing purchase invoices from local vendors
• E-way bills generated incorrectly for interstate sales
• GST returns filed late regularly (3-6 months delay)
• Now received summons for personal hearing

Our Solution

Phase 1: Immediate Crisis Management (Week 1-2)

Assessment & Documentation:

• Conducted full GST audit for 3 years
• Reconciled all sales invoices with GSTR-1 filings
• Matched all purchase invoices with GSTR-2A
• Identified actual vs. claimed discrepancies
• Analyzed HSN code misclassification impact

Findings:

• HSN Code Issue: Not entirely wrong, just more specific code available
  • Actual tax difference: ₹1.2L (not ₹8L as claimed)
• ITC Mismatch: Primarily due to vendor non-filing
  • Legitimate ITC: ₹3.8L (out of ₹6L disallowed)
  • Ineligible ITC: ₹2.2L (personal use, missing docs)
• Late Filing: Penalty valid

Phase 2: Legal Response & Representation (Week 3-6)

Prepared Comprehensive Reply:

HSN Code Classification:

• Cited relevant GST circulars and case laws
• Demonstrated both codes applicable under product description
• Argued tax rate same in both classifications
• Actual short payment: Only ₹1.2L (recalculated)

ITC Reconciliation:

• Submitted GSTR-2A vs. claimed ITC reconciliation
• Provided vendor details and follow-up proof:
  • ₹2.8L: Vendors filed GSTR-1 late (after our GSTR-3B)
  • ₹1.0L: Vendor GST numbers genuine, returns filed subsequently
  • ₹2.2L: Voluntarily reversed ineligible ITC

Personal Hearing Representation:

• Attended personal hearing with complete documentation
• Presented reconciliation evidence systematically
• Demonstrated good faith efforts to comply
• Submitted revised computation with voluntary payment

Phase 3: Compliance Restructuring (Ongoing)

Implemented Robust GST Systems:

Monthly Compliance Checklist:

• Sales data from Amazon, Nykaa, Flipkart reconciled
• GSTR-1 filed by 10th of next month
• GSTR-2A vs. GSTR-2B reviewed for ITC
• GSTR-3B filed with accurate ITC claim
• Monthly ITC reconciliation statement prepared

Process Improvements:

• Vendor registration verification before orders
• Only purchase from GST-compliant vendors
• Digital invoice management system implemented
• Personal vs. business expense segregation
• E-way bill generated automatically via software
• Quarterly GSTR-9 reconciliation (instead of annual chaos)

Advisory Support:

• Monthly GST review calls
• Proactive alerts on return deadlines
• Advance planning for high-value purchases
• State-wise threshold monitoring

The Results

Litigation Outcome:

• Original Demand: ₹18,00,000
• Final Settlement: ₹2,25,000
  • Tax short-paid: ₹1,20,000
  • Interest: ₹45,000
  • Penalty & Interest: ₹60,000 (reduced from ₹4L)
• Savings: ₹15,75,000 (87% reduction)

Compliance Improvement:

Before Task360:

• Returns filed 2-3 months late
• ITC claimed randomly without verification
• Zero reconciliation or documentation
• Living in constant fear of notices

After Task360:

• 100% on-time filing for 18+ months
• Clean ITC claims with proper documentation
• Monthly reconciliation prevents year-end surprises
• Proactive compliance = peace of mind

Business Impact:

• Can now focus on product development and marketing
• Improved credibility with suppliers (timely GST compliance)
• Better cash flow management (advance tax planning)
• Vendor relationships improved (they see professional approach)
• Estimated time saved: 40+ hours per month

Financial Impact:

• Saved ₹15.75L in penalties
• Monthly compliance cost: ₹15,000
• Prevention of future notices: Priceless
• ROI: One-time savings paid for 7+ years of compliance services

Client Testimonial

“That GST notice was the most stressful period of my business. I couldn't sleep for weeks. Task360 not only reduced my ₹18L demand to ₹2.25L, but they fixed my entire GST system. Now I actually understand what's happening with my taxes, and I haven't received a single notice in 18 months. The peace of mind is worth every rupee.”

Key Takeaways

✓ Professional GST representation can reduce demands by 70-80%
✓ Proactive reconciliation prevents year-end disasters
✓ Proper documentation is 80% of successful litigation defense
✓ Monthly compliance is cheaper than annual crisis management
✓ ITC claims must be verified, not assumed
✓ Investing in proper systems pays for itself many times over