What Is the Invoice Management System (IMS)?
The IMS, recently launched by the GST Network, is intended to help taxpayers manage their invoices and match them with those issued by their suppliers. This initiative aims to ensure accurate ITC claims by allowing taxpayers to accept, reject, or keep invoices pending. The GST portal will generate the first GSTR-2B, an auto-populated ITC report, on the basis of actions taken in IMS for the October return period, available from November 14.
Benefits and Challenges of IMS
The core aim of the IMS is to reduce the instances of input tax credit mismatches and subsequent notices from authorities. However, tax experts argue that its implementation also adds to the compliance burden on taxpayers. Currently, taxpayers already reconcile their input tax credit before filing GSTR-3B, and IMS now introduces an additional step.
According to Harpreet Singh, Partner of Indirect Tax at Deloitte, while IMS may provide better ITC management, it introduces a further compliance hurdle for taxpayers. One notable issue is the lack of flexibility to partially accept, reject, or keep pending invoices, which would enhance the recipient-centric IMS.
Concerns with Credit Notes
The handling of credit notes under the IMS has also raised concerns. Vivek Jalan, Partner at Tax Connect Advisory Services, pointed out that under the current system, if a supplier issues a credit note (CN) to reverse a GST liability, the recipient must either accept or reject the CN without an option to keep it pending. This creates problems, especially when the timing of issuing and receiving credit notes differs.
For example, if a credit note is issued on October 31 and the recipient only accounts for it on November 2, the recipient has to reject the credit note in the October return. If rejected, the supplier is then obligated to pay the corresponding GST, despite not being liable for it—a scenario that can lead to significant financial strain.
Jalan urged the GST Network (GSTN) to address this issue soon to avoid hardship for taxpayers. Harpreet Singh also highlighted that deemed acceptance of credit notes, in cases where no action is taken, could lead to ITC reversals and inadvertently inflate the supplier’s tax liabilities.
Optional Nature of IMS and the Way Forward
The GST Network clarified that IMS is an optional tool for taxpayers, meaning they are not obligated to take immediate action on each transaction. If no action is taken, transactions in IMS will be deemed accepted by default. Additionally, a committee will be formed by the GSTN, comprising trade representatives, to review issues and gather feedback for improvements.
It’s also important to note that certain entries, such as reverse charge and import-related transactions, will continue to be directly integrated into Form GSTR-2B, bypassing IMS.
Analyzing the Impact
The Invoice Management System represents a dual-edged sword. On one hand, it promises a more robust ITC ecosystem with better tracking of supplier-issued invoices. On the other, it imposes an additional compliance burden on businesses that are already overwhelmed by GST filing requirements. While the IMS has potential, its current form leaves room for improvement, especially in providing more flexibility in handling transactions like credit notes.
As this new system evolves, it will be critical for the GST Network to address taxpayers’ concerns promptly. A collaborative approach, involving trade representatives in decision-making, may ensure the IMS becomes an effective tool rather than an additional compliance obstacle.