GST: Recommendations in relation to implementation of Invoice Management System

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GST: Recommendations in relation to implementation of Invoice Management System

Tejasvi

@tejasvi

October 1, 2024

Public Policy

270

Background:

As you may be aware, the Goods and Services Tax Network (GSTN) recently introduced a new communication process “Invoice Management System” (IMS) with effect from October 1, 2024 to facilitate matching of recipient’s records vis-à-vis tax invoices issued by their suppliers for availing the correct Input Tax Credit (ITC). This will allow the recipient’s to either accept or reject an invoice or to keep it pending in the system until it is reconciled.

IMS will allow auto-flow of verified and correct data from GSTR-2B of the taxpayers to the Form GSTR-3B. As per the draft manual issued by GSTN, Form GSTR-2B generated based on the data of IMS will be available with effect from October 14, 2024.

Issues:

We have made a submission to GSTN and GST Policy Wing highlighting the following issues:

IMS not optional as envisaged, since action taken at recipient’s end impacts supplier reporting

Vide Press Release dated 09 September 2024, it was clarified that IMS is an “optional” facility provided to taxpayers. Taxpayers may choose to opt in for the same to reduce errors in claiming ITC and improving reconciliations. However, where a taxpayer has opted out of IMS but the recipient of their supplies has opted to implement IMS, then in such a case, then supplier will be bound to undertake IMS related reconciliations to ensure that their output liability is not increased.

Further, the above facility of addition to supplier’s liability in case of rejection of credit notes, may be mis-utilised by recipients in cases of disputes, disagreements and litigations, leaving even the compliant supplier at the mercy of the recipient. Therefore, till the IMS facility is optional, it should not trigger any demand/ notice for mismatch/automatic additions during this optional phase.

No pilot period provided for user-testing and implementation of IMS

Implementation of IMS will require significant changes to the accounting softwares, technological infrastructure and procurement/ payables processing, to ensure compliance with IMS. The first advisory, intimating the taxpayer of introduction of the IMS, was issued on September 3, 2024. Further, the APIs for IMS were released in mid-September, giving the taxpayer a period of only 2 weeks for implementation.

To adhere to this compliance requirement, companies will have to invest heavily to undertake system changes and train their procurement/ accounting/ tax teams to undertake IMS related reconciliations. Similarly, recipients that are not technologically equipped or unaware, may use this system incorrectly, causing issues for the supplier – either by way of increasing supplier liability or unnecessary rectifications.

‘Edit’ option on IMS not provided

There is no ‘edit’ option provided to recipients in IMS, in cases of errors while exercising the option of ‘Accept’/ ‘Reject’, post filing GSTR-3B. This means that the recipient will be dependent on the supplier for rectification of errors, including partially mis-matched fields/ values.

No ‘pending’ option for Credit Notes

There is no option given to recipient to keep a credit note as “Pending” in the IMS. On “Rejection” of credit notes the same increases the liability of the supplier. With the omission of S. 42 and 43 of CGST Act, there is no provision under GST laws that enables amendment of supplier’s tax liability based on the actions undertaken by the recipient of supplies. Therefore, to directly increase tax liability of the supplier, is beyond the enabling provisions of GST law and hence, invalid.

Lack of clarity on interest exposure in the hands of the Supplier

It has been stated in Q34 of FAQs on IMS that on rejection of a credit note by recipient, the corresponding liability will be added to supplier liability in GSTR 3B of subsequent tax period. No clarity has been provided on the applicability of interest under S. 50 of CGST Act, in such a scenario, specifically in instances where the Supplier makes payment of tax liability using cash balance.

Need for offline utility to manage voluminous data reconciliation

IMS is implemented in a manner such that the Recipient will have to select action (i.e., to ‘Accept’, ‘Reject’ or keep ‘Pending’) against the documents on the portal itself. There is no offline utility that has been provided to the taxpayers. Considering the volume of the transactions that are undertaken by large companies and subsequently, the documentation that will require action, the offline utility will be required to undertake compliances.

Lack of clarity in relation to Input Services Distributor (ISD) invoices

As per the Press-release, ISD invoices will form part of IMS. However, basis the FAQs, GSTR-6 related records will flow directly to GSTR-2B. Therefore, the applicability of IMS to ISD invoices is to be clarified. Further, in instance where GSTR-6 records will flow directly to GSTR-2B (as provided in FAQs), there is no guidance on what happens in a scenario where a regular invoice is amended to be an ISD invoice, after the same is accepted by the recipient in the IMS portal. This clarity is required as the regular invoice will leave the IMS system on acceptance forming part of Form GSTR-2B and ISD invoice (on amendment) will flow directly to Form GSTR-2B, leading to a scenario of duplicate records in Form GSTR-2B.

Data flow as per IMS contradictory to guidance provide for filing GSTR-3B

Para 4.3 of Circular No. 170/02/2022-GST dated 06 July 2022 states that “The statement provides invoice-wise total details of ITC available to the registered person including the details of the ITC on account of import of goods. Further, details of the said statement are auto-populated in Table 4 of return in FORM GSTR-3B which are editable in the hands of registered person. It may be noted that the entire set of data that is available in FORM GSTR-2B is carried to the table 4 in FORM GSTR-3B, except for the details regarding ITC that is not available to the registered person either on account of limitation of time period as delineated in sub-section (4) of section 16 of the CGST Act or where the recipient of an intra-State supply is located in a different State / UT than that of place of supply”.

Therefore, the guidance in the Circular is that all credit except that restricted due to limitation of account of place of supply or Section 16(4), will flow to the Form GSTR-3B in Table 4 – ‘All Other ITC’. In case where such credit is not to be availed limitation imposed by Section 16(2) of the CGST Act, the guidance is to avail and reverse as a temporary reversal in Table 4(B)(2) of the Form GSTR-3B. With introduction of IMS, invoices kept as ‘Pending’ or ‘Rejected’ will not flow to Form GSTR-2B in the first place. Therefore, there is a discrepancy between the guidance in the Circular on the approach to be adopted for disclosures in Form GSTR-3B, and the approach due to IMS.

Recommendation

We have requested the government to provide clarity/ resolve ambiguities in relation tothe above-mentioned scenarios. This will enable taxpayers to make required changes in their accounting software and adapt IMS for compliance.

Once clarity is provided on the above aspects, industry should be given reasonable time to incorporate these in the ERP/ accounting software. Hence, we have requested the government to extend time for implementation of IMS by a period of atleast 6 months, i.e., implement from April 1, 2025.

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Tejasvi