Since May 2026, PLI nodal agencies have begun issuing audit notices with materially tighter verification standards for incremental-sales computation — the foundation of every PLI cash claim. Component makers reporting 15–25% incremental growth are now facing baseline recalculation challenges, invoice-level scrutiny, and 30–60 day remediation windows.
The shift signals a shift from documentation acceptance to forensic baseline reconstruction. For makers with ₹2–10 crore in annual PLI claims, a single rejected tranche can lock ₹40–80 lakhs in cash for 4–6 months.
Market signals
PLI auditors are now cross-checking FY 2019–20 purchase invoices against GSTIN-mapped supplier registrations. Invoices from vendors whose GSTIN was subsequently cancelled or suspended are being flagged as ineligible, even if payment cleared and goods arrived. A ₹50-lakh purchase bill from a supplier de-registered in 2021 will now trigger baseline recalculation downward by the auditor, reducing all downstream incremental claims. This mirrors the June 2026 GST authority order (M/s Sunrise Traders case) that denied ITC on invoices from cancelled registrations — the same logic now applies to PLI baseline reconstruction.
Nodal agencies are rejecting incremental-sales claims when a component maker cannot trace the same SKU (part number) from baseline-year invoices through to PLI-period sales invoices. A bearing maker claiming incremental growth in deep-groove ball bearings must now provide continuous purchase → production → sales invoices for identical specifications across both periods. Absence of a single month's production record in the baseline year voids the entire product line's incremental claim for that period. This extends audit timelines to 90+ days and requires monthly production records to be archived with invoice-level traceability.
PLI auditors are now requesting board-approved transfer-pricing studies (Rule 10A, Income Tax Act) for any baseline or PLI-period sales to group entities, associated concerns, or captive OEM assembly units. Sales to a promoter-owned distributor or a related-entity auto-assembly plant are being excluded from incremental computation unless a contemporaneous TP study justified the price. For a ₹20-crore auto-component maker with 8–12% of baseline sales to a related trading entity, this can reduce eligible incremental claims by ₹1.5–2.5 crore over the PLI window.
PLI claim rejection under revised audit protocols carries two material risks: (1) cash-flow lock — rejected tranches trigger 90–180 day dispute-and-remedy cycles, suspending quarterly instalments; (2) claw-back exposure — if a prior claim is later found to rest on ineligible baseline invoices, nodal agencies may demand repayment of already-disbursed tranches. The compliance consequence falls on the finance and operations heads: baseline invoices must now be audited as if they were GST ITC claims, and incremental reconciliation must be monthly, not annual. Vinayakam Consultants helps component makers reconstruct auditable baseline records, map incremental sales to production logs, and draft TP studies that protect related-party transactions — reducing claim-rejection risk and audit timeline exposure.
Your action checklist
- Audit all baseline-year (FY 2019–20 or FY 2020–21) purchase invoices against current GSTIN status of suppliers; flag and exclude
Frequently asked questions
PLI nodal agencies have tightened baseline verification standards since May 2026, requiring forensic invoice-level scrutiny and GSTIN-mapped supplier validation. Claims now face rejection if invoices are from cancelled registrations or lack continuous product traceability.
Invoices from suppliers whose GSTIN was subsequently cancelled or suspended are flagged as ineligible, triggering downward baseline recalculation by auditors and reducing all downstream incremental PLI claims.
A single rejected tranche can lock ₹40–80 lakhs in cash for 4–6 months, with 30–60 day remediation windows given to component makers to address audit notices.