GST Invoice Management System (IMS): Challenges & Solutions

Who is playing with PULSE and BLOOD of the business – Invoice Management System (IMS) – New Game Changer in Business, challenges and Litigation under GST 

Invoice is the PULSE of business: –

Invoices are a vital part of a business’s financial health and are often referred to as the lifeblood of a business’s financial transactions.

The GST department wants to control on all B2B invoices of incoming and outgoing supplies with debit and credit notes.

An invoice reference number(E-Invoice) and eway bill have already been applied for this. Now the GST department wants to resolve all queries related to input tax credit, credit notes, debit notes and outward supplies at supplier and recipient level so that input tax credit litigation is reduced in future.

But this will increase the number of other litigation notices, and both the workload and the cost of automation will increase. Time, manpower will be required to check rejection and amendment on portal regularly and follow-up with receiver or supplier.

For that, GST department has introduced Invoice Management System (IMS) From 1^st October 2024, this is a new feature within the GST portal designed to enhance the management of invoices between suppliers and recipient taxpayers. It allows recipients to accept, reject, or keep invoices pending,

Let’s see the Invoice Management System (IMS).

Key features of the functionality are as under: –

1. Once a supplier saves an invoice in their GSTR-1, it will appear in the IMS dashboard of the recipient taxpayer.

2. The recipient can then choose to accept, reject, or leave the invoice pending.

a. Accept –

Treatment in recipient’s GSTR 2B – Flow to the ‘ITC Available’ section of GSTR 2B.

Treatment in recipient’s GSTR 3B – Auto-populate in GSTR 3B as eligible input tax credit

b. Reject –

Treatment in recipient’s GSTR 2B – Flow to the ‘ITC Rejected’ section of GSTR 2B

Treatment in recipient’s GSTR 3B – Will not auto-populate in GSTR 3B

c. Pending –

 Treatment in recipient’s GSTR 2B –

1 – Carried forward in IMS and not considered for preparation of GSTR 2B.

 2 – Need to be eventually either accepted or rejected within the timeline prescribed as per Section 16(4) of the Central GST Act.

Treatment in recipient’s GSTR 3B – Will not auto-populate in GSTR 3B

d. No action – No Action is an Action

 Treatment in recipient’s GSTR 2B – Deemed accepted.

Treatment in recipient’s GSTR 3B – Auto-populate in GSTR 3B as eligible input tax credit.

3. All accepted/ deemed accepted/ rejected records will move out of IMS dashboard after filing of respective GSTR 3B;

4. Pending records will remain on IMS dashboard and these records can be accepted or rejected in future months.

5. It will be mandatory to take action on original record and file the respective GSTR 3B before taking action on amended record (amended through GSTR-1A/GSTR-1)

6. Liability of supplier will be increased in GSTR-3B for the subsequent tax period, for the invoices/records which have been rejected by the recipient in the IMS pertaining to specific cases.

7. GSTR 2B will be sequential now. i.e. system will generate GSTR 2B of a return period only if GSTR 3B of previous return period is filed.

Specific situations: –

GSTN has described the treatment of certain specific transactions in IMS, 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 IMS, notwithstanding the action taken by the recipient on the original invoice.

2. If the supplier amends any invoice reported in GSTR 1 through GSTR 1A, the amended invoice will flow to IMS, but the corresponding input tax credit will flow in the recipient’s GSTR 2B for the subsequent month.

3. The following transactions will not go to IMS and will be directly populated in the GSTR 3B of the recipient:

a. Inward reverse charge mechanism supplies where the supplier has reported in the Table 4B of Invoice Furnishing Facility (IFF), GSTR 1 or GSTR 1A and

b. Supplies where the recipient is not eligible to claim input tax credit due to restrictions either in Section 16(4) of the Central GST Act or in Place of Supply rules 

4. In case of amendments:

a. 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

b. If both the transactions are in the same GSTR 2B period, only the amended record will be considered for input tax credit in GSTR 2B

5. Any change to the transaction made by the supplier before filing their GSTR 1, GSTR 1A or IFF will reset that transaction’s status in the recipient’s IMS.

6. The transactions saved or filed through IFF by a taxpayer under the Quarterly Return Monthly Payment (QRMP) scheme will flow to the IMS of the recipient and will form part of the recipient’s GSTR 2B based on the actions taken. For a QRMP taxpayer, the GSTR 2B will be generated on a quarterly basis and it will not be generated for the first two months of the quarter.

GST Compliance/Business Challenges: –

 Block Working Capital (Lifeblood of the business) –

• If the recipient rejects the Credit note and furnished the GSTR 3B then the corresponding liability will be added to the supplier liability in the GSTR 3B of subsequent tax period and Interest also applicable on it.
• Tax Invoice raised and stock is in transit or stock not dispatched and If the recipient rejects the Tax Invoice and furnished the GSTR 3B then corresponding liability will not be reduce from the supplier liability.
• Supplier inadvertently raised tax invoice and since IRN was already generated, he issued a credit note against the same amount of that invoice. Since pending action is allowed for tax invoices but not for credit notes, so the receiver can keep the tax invoice pending but has to reject the credit note, which increases the supplier’s liability.
• Invoice issued by Supplier not received from business team. However, invoice appearing in IMS and kept pending. CN issued by the Supplier subsequently. Since pending action is allowed for tax invoices but not for credit notes, so the receiver can keep the tax invoice pending but has to reject the credit note, which increases the supplier’s liability.
• Partial acceptance/rejection of records be not allowed in IMS – If Short quantity received and invoice accounted with actual quantity received.

For example – Invoice raised of 100 quantities but only 80 quantity received, receiver accounted bill of 80 quantity.

In this case, as partial acceptance is not allowed, either receiver has to accept full invoice and take full input tax credit which is not allowed as per GST law or wait for credit note from supplier which may delay in claiming input tax credit.

• Cost of Automation – Every time the GST department comes up with a new one and the business has to spend to automate it and spend again as they change it after some time. For example – GSTR2B implemented by department on 1^st January 2021 to avail input tax credit, corporate spent time and money on automation to automate it and where it was fully automated, they now came up with IMS.

Also don’t know how to automate small business owners who have less capital

• Cost of Employees – Manpower will be required to regularly check rejections and corrections on the portal and follow up with the recipient or supplier. Each discrepancy has to be resolved by talking to the receiver or supplier and keeping all the details on records.
• If the supplier amends the tax invoice on the last day of claiming input tax credit, the receiver has to reverse the input tax credit with interest.

Stock Reconciliation

If the recipient rejects the Credit note it means stock fully received at receiver location or dispatched from supplier location,

Credit note raised means short stock received at receiver location and posted GRN with actual receipt,

In this case, after proper follow up with the receiver, if there is a short qty, accept it otherwise stock reconciliation never matches.

GST Return Reconciliation and Litigation notices–

• Gstr1 and GSTR3B will never match due to rejection, so all their supporting proofs will have to be maintained by doing detailed reconciliation.
• Eway bill and IRN reconciliation will never match due to rejection of Tax Invoice and Credit notes. so, all their supporting proofs will have to be maintained by doing detailed reconciliation.
• How to integrate and ensure reconciliation of finance accounting system, IMS, E-invoice, E-Way bill, GSTR 1 and GSTR 3B on monthly basis.
• Financial turnover Vs GST turnover – this reconciliation will never match due to rejection of Tax Invoice and Credit notes.
• IMS Reconciliation will have to be done multiple times (Pre and post generation of GSTR2B).
• Due to the above reason notices will come every month and litigation will increase.

Mandatory – tracking of action and subsequent communication to vendors.