Invoice Management System – New Compliance – Part 1

[Nikita Maheshwari]

In the last month, GSTN has released 3 advisories on the Invoice Management System (“IMS”), encompassing and elaborating on a rather meticulous methodology of availing the Input tax credit. The “optional” facility, to be made live on portal on 1^st October 2024, allows the taxpayer to take actions on the invoices, debit notes and credit notes furnished by the respective vendor.

The supplier would also be able to view the actions taken by the recipient (functionality to be made available soon).

However, the history to this has been that, initially when GST was introduced during Jul ’17, Form GSTR-2 existed, which after being introduced for 1 month was withdrawn and something similar is now being attempted in the form of IMS.

Legal standing of the IMS

As has been the case with many other statements like GSTR-3B, GSTR-2A, GSTR-2B, ITC opening balance statement, etc. which were introduced first on the GST portal requiring the taxpayers to comply and then much later only the related provisions were included in the statute, same is the case with IMS.

It would be interesting to see a retrospective amendment in law, or courts deciding to strike down the proposed changes in distant future.

IMS leading to a Dynamic GSTR-2B?

Information would be flowing in the IMS as soon as it starts reflecting in the respective vendor’s portal after generation of their E-invoice. No waiting till 14^th to see what documents have been generated by the vendor. The IMS would allow the user to take action (“accept” “pending” “reject”) even before filing of GSTR-1 by vendor and generation of GSTR-2B.

Document in IMS	Action that can be taken by recipient
Invoices	“accept”       /     “pending”     /    “reject”
Debit notes	“accept”       /     “pending”     /    “reject”
Credit notes	“accept”       /    “reject”

The documents are frozen in the IMS portal once the vendor file their GSTR-1, which would be ‘default GSTR-2B’. Based on the actions taken by the taxpayer, the GSTR-2B can be re-generated (only ‘accepted’ and ‘no action’ records would form part of GSTR-2B, excluding the ‘rejected’ and ‘pending records’). If the taxpayer wishes to make any changes to the entries in IMS, he can do so until filing of his GSTR-3B – resetting and recomputing the GSTR-2B.

Effectively, IMS would change the mechanism of return filing, introducing an additional statement to act upon before filing of returns. However, the option of not acting up on IMS also exists, which would mean deemed acceptance of all the invoices, debit notes and credit notes appearing in IMS, which will then flow into GSTR 2B.

What’s in it for taxpayers?

Initially, it looks like the IMS is a harmless statement on which even if no action is taken, it does not matter since all the entries will flow into GSTR-2B as it is presently happening. However, one can never imagine the number of notices (system generated) that may follow in case any insane logic is set by the IT professionals based on the insane inputs provided to them!

So, it is suggested that after a wait and watch game of a few months, taxpayers start building systems and infrastructure to enable them to act up on the IMS.

The main purpose of its introduction is to enable the supplier to know any mistakes in his entries in GSTR1 in advance and allow him to rectify them.

The taxpayers choosing to take action on the entries in the IMS would be broadly required to –

1. keep a robust reconciliation system in place to ensure document level matching of input credit invoices can be done and actions can be taken in the IMS portal,
2. communicate with suppliers in case of mismatches, in the hope of supplier making corrections before filing their GSTR-1 so that proper ITC flows to the recipient.
3. Have a tally of all the credit notes issued by vendors, as the only option available with taxpayer is “Accept” or “Reject”.
4. Wherever the recipient has taken any rejection action on their IMS, the supplier can view it in their IMS portal and take appropriate actions in their GSTR-1 (if not already filed) or in their GSTR-1A (if GSTR-3B for the period not filed) or make amendments in subsequent returns.

All in all, another compliance burden added on the taxpayers wherein they would need to add on robust reconciliations systems in their ERP or as additional software, engage additional manpower for reconciliation and follow up with vendors and customers.

Proposed process flow for taxpayers adopting IMS –

Period	Activity	Objective & Reasoning
5th to 8th of the month	Download the records available in IMS. Reconcile all CNs and communicate to vendor in case a CN appears improper.	Trade practices and relations will have a negative impact if a credit note is rejected, resulting in addition in tax liability of the supplier in subsequent month. Instead of having to reject a credit note, better have it reconciled before the supplier files their GSTR-1 to avoid any diverse impact in vendor-customer relations. General practical nuances as the period is crucial in the Finance Sector (MIS, TDS returns, GSTR-1, period closing etc.) to also be navigated.
14th of the month	Download all open entries in the IMS and reconcile with books data.	Open entries in IMS = uploaded by vendor in his GSTR-1 in current month + entries which were kept pending in IMS by recipient in previous months Books data = Unmatched data of books (current month + pending invoices of previous months) Reconciliation of books & IMS can be done for taking actions in the IMS.
Post reconciliation	Take “pending” and “reject” action for entries not matching.   Remaining entries would flow to 3B as accepted.	As no action taken translates to deemed accept in the IMS, it is suggested to only take “Pending” or ‘Reject’ action for entries not matching. It is advised to not take ‘rejected’ action in case of invoices, as there seems to be no recourse available if the GSTR-3B is subsequently filed and such document is to be accepted.

Following could be a summarised view for actions taken in the IMS –

(S) stands for supplier, (R) for recipient,  à stands for ‘Flows to’

Scenario 1 | No action done / Ignore IMS

(S) saves data to GSTR-1 -à IMS of (R)

(S) files GSTR-1 à GSTR-2B (R)

(S) Amends GSTR-1 through GSTR-1A à Recipient GSTR-2B in next month

Scenario 2 | (R) Accepts invoices in IMS

(S) saves GSTR-1 à (R) IMS ---- (R) Accepts à out of (R) IMS -à into (R) GSTR3B

(S) Amends GSTR-1 à Invoices reset and get back to (R) IMS ---- (R) do the above again

After above ---- (S) GSTR-1 filed à (R) GSTR 2B

Hence, don’t accept/reject before 14^th / before GSTR-1 is filed by supplier, since entries get reset in IMS requiring action to be taken by (R) again on those invoices which are amended by supplier before filing GSTR-1.

Scenario-3 | Reject invoices in IMS

(S) saves GSTR-1 à (R) IMS ----- (R) Rejects à NOT into (R) GSTR 3B à Also out of (R) IMS

(S) Amends GSTR-1 à Invoices reset and get back to (R) IMS ---- (R) do the above again

(S) does not amend --- invoice entry not in (R) IMS and GSTR2B ---- Available to (S) to amend in next tax period / GSTR-1A.

Scenario 4 - Pending invoices in IMS

(S) saved GSTR-1 à (R) IMS --- (S) keeps Pending à NOT into (R) GSTR3B, Will remain in (R) IMS.

(S) Amends GSTR-1 à Replace (R) IMS data -à do the above again

After above --- (S) GSTR-1 filed à not into (R) GSTR 2B and still appearing in (R) IMS ---- (S) Take appropriate action (Accept or reject) in subsequent period

Looks pretty simple right? Think again! The above only works in a perfect scenario, and trade generally doesn’t work perfectly.

With this we will close this article, since digesting the above itself could take some time. In our next article in this series, we will come up with simple FAQs to allow taxpayers to better understand what action of theirs in IMS can have what effect in their return statements. Until then, keep complying, which lets the government to introduce more statements to ease their jobs!!

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For knowledge purposes only