Focus Point

Invoice Management System under GST law: A step towards simplification or complication?

The GST regime has stepped into its eighth year and while it may have revolutionized the taxation framework in India, it has had its fair share of ups and downs. Being cognizant of the trade and industry concerns, the GST Council has been evidently focusing on mitigating undue litigation, improving tax administration, and enhancing the ease of doing business. At the same time, the Government has been sensitive to revenue leakages and tax frauds and been implementing stern measures to plug/curb the same. One such measure to check Input Tax Credit (ITC) frauds has been the introduction of GSTR-2A/2B, basis which recipients are allowed to claim credit only to the extent of invoices/transactions disclosed by the corresponding suppliers in their GSTR-1s/GSTR-1As/ Invoice Furnishing Facility (IFF).

A step further to reduce errors in claiming ITC and to improve its reconciliation, is the introduction of Invoice Management System (IMS) w.e.f. 1 October 2024 as an optional facility for taxpayers. As per the GST Council, the IMS is expected to reduce issuance of notices on account of ITC mismatch in the returns.

This functionality is accessible to persons registered as normal taxpayers (including SEZ units & developers) and casual taxpayers.

Functioning of IMS

Vide this functionality, the recipient taxpayers will be allowed to either accept, reject, or keep pending the invoices (including debit and credit notes) received from their suppliers. These actions can be taken from the time of saving the records in GSTR-1/GSTR-1A/IFF by the supplier till the recipient files their corresponding GSTR-3B.

The flow of IMS will be as follows:

It may be pertinent to note that if the recipient does not take any action on an invoice in the IMS, it will be deemed to be accepted and will move to GSTR-2B, with ensuing autopopulation in GSTR-3B.

Further the ‘pending’ action will not be allowed, i.e., the transactions will require to be either ‘accepted’ or ‘rejected’ by the recipient in the following scenarios:

1. Original credit note
2. Upward amendment of the credit note, irrespective of the action taken by the recipient on the original credit note
3. Downward amendment of the credit note, if the original credit note was rejected by the recipient
4. Downward amendment of the invoice/debit note, where the original invoice/debit note was accepted by the recipient and respective GSTR-3B has also been filed.

In the above scenarios, if the recipient rejects the transaction in IMS, the supplier’s liability will increase in their GSTR-3B of the subsequent tax period.

Basis these actions, the draft GSTR- 2B will be made available on 14th of every month to the recipient. However, any action taken on an invoice after the 14th would require the recipient to recompute the draft GSTR-2B.

All accepted/deemed accepted/ rejected records will move out of the IMS dashboard after filing of respective GSTR-3Bs.

Treatment of specific situations

In addition to the above, the GSTN, in its advisory, has described the treatment of certain situations in the IMS. They are as follows:

1. If the supplier amends the details of an invoice saved in GSTR-1 before its filing, the amended invoice will replace the original invoice in the IMS, notwithstanding the action taken by the recipient on the original invoice.
2. Similarly, if the supplier amends any invoice reported in GSTR-1 through GSTR-1A, the amended invoice will flow to IMS, but in this case, the corresponding ITC will flow to the recipient’s GSTR-2B of the subsequent month.
3. In case of amendments:
   • If the original and the amended transactions are in two different GSTR-2B periods, it will be mandatory to take action on the original record and file the corresponding GSTR-3B before taking action on the amended record (amended through GSTR- 1A/GSTR-1).
   • However, if both the transactions are in the same GSTR-2B period, only the amended record will be considered for ITC in the GSTR- 2B.
4. Any change made in an invoice/ record by the supplier before filing their GSTR-1/GSTR-1A/IFF will reset that transaction’s status in the recipient’s IMS.
5. Insofar as the reporting under Quarterly Return Monthly Payment (QRMP) scheme is concerned:
   • The transactions saved or filed through IFF by the supplier will flow to the IMS of the recipient and will form part of the recipient’s GSTR-2B based on the actions taken.
   • Where the recipient is a QRMP taxpayer, the GSTR-2B will be generated on a quarterly basis. It will not be generated for the first two months of the quarter.
6. Following supplies and documents will not go to IMS and will be directly populated in the GSTR-3B:
   • Inward RCM supplies where supplier has reported in the Table 4B of IFF/GSTR-1/GSTR-1A.
   • Supplies where ITC is not eligible due to time bar [Section 16(4)] or on account of place of supply rule.
   • Indian Customs Electronic Gateway (ICEGATE) documents.
   • Documents flowing from GSTR-5 (return for non-resident taxable persons) and GSTR-6 (Input Service Distributor return).
   • Documents where ITC is to be reversed on account of Rule 37A of CGST Rules (non-payment of GST by supplier).
7. GSTR-2B will be generated only if GSTR-3B of the previous return period has been filed.

Implementation

IMS has been made available on the GST portal as well as through Application Programming Interfaces (APIs). Accordingly, the taxpayers can either carry out the actions on the GST portal, which also facilitates downloading of the IMS details in a spreadsheet format or choose to integrate the process with their ERPs.

Our Comments

The introduction of IMS brings about a substantial change to the GST compliance and invoicing processes. While acting on each invoice is currently optional, it could soon become mandatory, thereby requiring businesses to proactively adopt the new functionality.

While this shift is touted to enhance the accuracy of ITC claims, it is too early to assess the overall efficiency of the functionality. Businesses would need to develop internal capabilities for verifying the transactions and for undertaking real-time resolution of any discrepancies, to avoid any noncompliance and mitigate supply chain disruptions.

Moreover, the functionality in its present form is more recipient-centric; therefore, any inadvertent action at the recipient’s end could have adverse implications for the supplier, as it would likely increase the latter’s tax liability in the subsequent GSTR-3B. Similarly, the consequence of rejecting or accepting an invoice which is later found to be otherwise, is still unclear – would there by a window to rectify the action and correctly claim ITC thereon?

For businesses who have not automated/fully automated their GST compliances as yet, this exercise could prove to be complicated, as they would be required to match all the invoices with their books as well as take necessary actions before the GSTR-3B filing due date.

Businesses will need adequate time to prepare themselves for the IMS and will require appropriate training to align with this newly introduced requirement, as it will significantly impact ITC and working capital.