Invoice Management System (IMS)

Invoice Management System (IMS) enables taxpayers to match their invoices with those issued by suppliers, ensuring the correct claim of Input Tax Credit (ITC). Through IMS, taxpayers can easily accept, reject, or mark invoices as pending, allowing them to manage their ITC claims as needed. The first GSTR-2B, reflecting the actions taken in IMS, will be generated for the return period of October 2024 on 14th November 2024.

Actions on IMS Data

Accept: For valid transactions that meet ITC conditions.
Reject: For invalid or grossly incorrect transactions.
Pending: For valid transactions that do not meet ITC claim conditions or are incorrectly reported.
No Action: If no action is taken by the 14th of the subsequent month, the filed transaction becomes part of GSTR 2B as deemed accepted.
Note: The ‘Pending’ action is not available for the following types of records:
Credit Notes: Except for downward amended credit notes where the original credit note is accepted, and the respective GSTR-3B has been filed.
Downward Amended Invoices/Debit Notes: When the original invoice/debit note is accepted, and the respective GSTR-3B has been filed.

Transactions Not Included in IMS

The following transactions are not part of IMS:

Import of Goods
Reverse Charge Mechanism (RCM) Transactions
Ineligible ITC Transactions:
1. Transactions reported after the cut-off date.
2. Transactions where the Place of Supply (POS) and the supplier’s state are the same, but the recipient’s state is different.
Credit Based on ISD Invoices
Note: GSTN is planning to add “Import of Goods” and “ISD Transactions” to IMS in the near future.

Recommended Actions on IMS Reconciled Results

Matched and Deemed Categories: No action required. These records are automatically deemed accepted.
Mismatch Categories:
1. Requires attention for value discrepancies.
2. Significant Value Differences: Mark as Rejected to allow the supplier to rectify before GSTR 1 filing.
3. Minor Value Differences: Mark as Pending if expecting supplier amendments.
IMS Only:
1. Invoices without corresponding purchase records: Use forced matching to check for comparable invoices.
2. If no matches are found, it may indicate:
a. Goods not received.
b. Missing valid tax documents.
3. Action: Mark such invoices as Pending.
4. If a wrong GSTIN is assigned, these records need to be Rejected.

Impact of IMS Actions on GSTR 2B and GSTR 3B

No Action / Accepted:
1. Invoices that are unaddressed by the 14th of the following month are deemed accepted and included in GSTR 2B.
2. Accepted and deemed accepted records will appear in the ITC Available section of GSTR 2B. ITC from these records will be auto-populated in GSTR 3B.
Rejected:
1. Rejected records will be included in GSTR 2B for viewing only.
2. These will appear in the ITC Rejected section of GSTR 2B. ITC from rejected records will not be auto-populated in GSTR 3B.
Pending:
1. Treated as deferred ITC.
2. These records will not be included in GSTR 2B or GSTR 3B and will remain in IMS.
3. Future actions (Accept or Reject) will be required.

Eligible and Ineligible ITC

For all valid transactions, actions should be Accepted or marked as Pending, regardless of whether they involve eligible or ineligible ITC.
Rejection actions are not necessary for ineligible ITC transactions. Rejection should only be used for significantly incorrect or invalid invoices.
Actions should be taken invoice-by-invoice, not based on partial amounts.

Summary of GSTR 2B and GSTR 3B Data Transition

Old GSTR 2B Invoices (Unclaimed ITC until September 2024): These invoices will not be included in IMS from October 2024. They must be reversed in the old GSTR 3B. To claim ITC on these invoices post-IMS, use the ITC reclaim flow.
The ITC reversal and reclaim process will continue post-IMS implementation. If invoices are accepted, ITC is claimed but the consideration to supplier is not paid within 180 days, then the reversal and reclaim process will still apply.

Key Points to Note

Accepted/Deemed Accepted/Rejected Records: These will be removed from the IMS dashboard when the respective GSTR-3B is filed.
Pending Records: These will remain in the IMS dashboard and can be accepted or rejected in the future.
Record Flow: Records will flow into IMS only at the time of saving. Taxpayers can take actions on these records, but to include them in GSTR 2B and GSTR 3B, the supplier’s return (where the record is saved) must be marked as Filed. If the supplier changes any saved record, the system will reset the status of that record.
GSTR 2B Generation: On the 14th of the following month, GSTR 2B will be generated based on the actions taken by the taxpayer on the IMS dashboard.
Re-compute GSTR 2B: Taxpayers can re-compute their GSTR 2B based on actions taken on IMS until the filing of the respective GSTR 3B. If any action on IMS data changes after the 14th, it’s mandatory to re-compute GSTR 2B before saving GSTR 3B.
GSTR 3B Error: If actions are taken on IMS data after the 14th (after the draft GSTR 2B has been generated), and the taxpayer doesn’t re-compute GSTR 2B, the following error will appear while working for GSTR 3B:
“Either GSTR 2B generation is underway, or recent changes on IMS haven’t been accounted for in GSTR 2B. Note: If changes are made on IMS, it is mandatory to re-compute GSTR 2B.”
Sequential GSTR 2B Generation: GSTR 2B will now be generated only after the filing of the previous GSTR 3B.

Common Practical Scenarios and Challenges

1. Original Credit Notes

Actions Allowed:

Accept or Reject: No pending action is permitted.

Practical Scenarios:

Multiple Invoices per Credit Note: A credit note may apply to multiple invoices, but there is no reference available in GST data. In such cases, partial acceptance or rejection isn’t possible; the entire credit note must be accepted or rejected.
Invoice Not Booked by Recipient: There may be instances where the recipient hasn’t yet booked the original invoice in their purchase register, though both the invoice and credit note are present in the IMS data.
1. In such cases, recipient will take action on invoice as “pending” in IMS, but the credit note must still be actioned (accepted or rejected).
2. If accepted, ITC is reduced; if rejected, the supplier’s liability will increase in the next return period, which could lead to adverse effects on both ends.
Net Accounting Practice: Some taxpayers follow net accounting, where the supplier issues both invoices and credit notes, but the recipient records only a single transaction with the net value (invoice value minus credit note value). This practice can cause mismatches at the document level.

Recommended Process Changes:

One-to-One Credit and Debit Notes: Suppliers should be asked to issue credit and debit notes corresponding to individual invoices, or at the very least, maintain invoice references for credit/debit notes issued.
Improve Invoice Booking: Address internal business process delays (e.g., due to approval workflows) to improve timely booking of invoices and credit notes. Automating the creation of purchase registers using E-invoice data or through vendor portals can help streamline this.
Gross Accounting Practice: Shift from net accounting to gross accounting, where each document is recorded separately as issued by the supplier.

2. Amendment of Invoices or Debit Notes

Actions Allowed:

Upward Amendments: For upward amendments, actions allowed are Accept, Reject, or Pending.
Downward Amendments: If the original invoice/debit note is accepted, only Accept or Reject are allowed for downward amendments. If the original invoice is rejected or pending, all actions (accept, reject, pending) are allowed for the downward amendment.

Practical Scenarios:

Original and Amended Invoices in Same IMS Period: Both original and amended invoices may appear in the same period in IMS. For instance, the original invoice could be filed in GSTR-1, and the amended invoice in GSTR-1A.
1. GSTR-2B Impact: The amended invoice from GSTR-1A will not appear in the current month’s GSTR-2B; it will be part of the next month’s GSTR-2B.
2. IMS Action Flow: Actions on the amended invoice can only be taken after the original invoice is acted upon, and the GSTR-3B for that period is filed. Even if the amended invoice is in IMS, the recipient cannot take action on it unless the original invoice is processed first.
Tracking Actions on Original and Amended Invoices: It’s crucial to track both the original and amended invoices to ensure the correct action is taken on each.

Recommended Process Changes:

Track Original and Amended Invoices: Ensure that original invoices and their amendments are tracked together.
Reconciliation with Purchase Data: Maintain a robust reconciliation process between amended invoice data and the purchase register.
ITC Calculation: ITC should be recalculated based on the actions taken on both original and amended invoices, ensuring accurate reporting in GSTR-3B.

3. Amendments in Core Critical Fields (RCM, POS, Counterparty GSTIN)

Challenges with Amendments:

RCM (Reverse Charge Mechanism): RCM transactions are not included in IMS. For example, if a supplier mistakenly classifies a transaction as non-RCM, it will be recorded in IMS as a regular B2B transaction. If the recipient accepts or deems it accepted, it will appear in GSTR-3B under 4A(5) (All Other ITC). If the supplier later corrects the RCM field, the amended invoice won’t be part of IMS, and the recipient cannot act on it. Instead, the corrected invoice will appear in GSTR-2B, and the recipient will need to adjust their GSTR-3B by reducing the amount under 4A(5) and reporting it under 4A(3) (Inward Supply under Reverse Charge).
Place of Supply (POS) Errors: If the supplier incorrectly mentions the POS and the recipient accepts the transaction without verifying it, the supplier may later amend the POS. And there is chance that due to POS issue, the ITC will be treated as ineligible like where supplier state and POS is same but recipient state is different. In such case such transaction will not be part of IMS after the amendment, this can lead to incorrect ITC claims, and reconciliation will be necessary to correct the ITC reporting in GSTR-3B.
Counterparty GSTIN Errors: If the supplier mistakenly enters the wrong GSTIN for the counterparty, and the recipient accepts it, this error will persist in IMS. After the supplier amends the GSTIN, the transaction will no longer appear in recipient’s IMS, And then recipient will not be in position to track such wrong ITC acceptance. In such cases, this may lead to notices from officers for accepting wrong data at IMS and claiming excess ITC.

Recommended Process Changes:

Reconciliation of Critical Fields: Regularly reconcile critical fields like RCM, POS, and GSTIN to ensure accurate data in IMS and GSTR-3B.
Track Amendments: Implement processes to track amendments to core fields to avoid errors and ensure the correct action is taken.
Corrective Action in GSTR-3B: Make adjustments to GSTR-3B when necessary, ensuring that the amended data is reflected properly, especially for ITC reporting.

Conclusion

The Invoice Management System (IMS) enhances the accuracy and efficiency of ITC claims by allowing taxpayers to manage invoices with ease—accepting, rejecting, or marking them as pending. As IMS evolves, staying proactive in reviewing and acting on data is crucial for accurate GSTR 2B and GSTR 3B filings. By addressing common challenges, such as invoice amendments and critical data discrepancies, taxpayers can minimize compliance risks and ensure correct ITC reporting. Leveraging IMS effectively will streamline GST processes, reduce errors, and promote smoother tax compliance.