Invoice Management System (IMS)

1. Introduction of IMS

GST was introduced 8 years ago with an intention to simplify the business activities in India. Government and CBIC are now coming up with multiple mechanisms to facilitate the taxpayers with smooth compliance of law.

Initially the process of filing GSTR-1, GSTR-2, GSTR-3 was notified where the invoices uploaded by the supplier flows into recipient GSTR-2A and the later can add, delete or modify the invoices appearing onthe dashboard. The recipient can also add the details which are not form part of GSTR-2A such as RCM, imports, composition supplier in his GSTR-2. This was omitted from the GST Act and never saw the light of day!

Later, in the GST 31st council meeting new forms of GST RET-1, ANX 1 and ANX 2 were proposed to replace GSTR-3/3B, GSTR-1 and GSTR-2/2A which was never enforced.

Further, the Government had allowed 20%/10%/5% of ITC not to appear in GSTR-2A/2B and from January 2022, it was mandatory to match ITC invoices with GSTR-2B.

Recently, through the Finance Bill 2025,the Government has come up with the Invoice Management System (IMS) to help the Recipient of goods/services to verify the correctness of the Invoices/CN/DN (records)appearing in his GSTR-2B. IMS enables us to reject the incorrect records,and the accepted records would form part of the Recipient's GSTR-2B.Note - IMS does not allow to add missing invoices similar to previous iterations.

Access the www.gst.gov.in URL and Click the Services >Returns >IMS Option.

Challenges to be addressed by IMS

This system has been proposed to mitigate the issues currently faced by the Recipient such as the ITC reversal check w.r.t supplier credit notes, invoices not pertaining to the Taxpayer appearing in his GSTR-2B dashboard and incorrect details appearing on records in addition to the present system of verification in terms of Sec 16(2)(aa) -ITC availment w.r.t reflection of Invoices in GSTR-2B.

Also, based on a recent GSTN advisory which was modified, there may be a plan to implement hard locking of the auto-populated ITC in GSTR-3B. IMS helps with the proper flow of records in GSTR-3B.

Legality of IMS

IMS has been made available from Oct 1, 2024, on the GST portal. However,this has no apparent legal backing. As per the Finance Bill 2025& 55th GST Council meeting (not yet effective), the Government plans on modifying the GST law as follows:

• To amend section 38 of the CGST Act, 2017 and rule 60 of CGST Rules, 2017 to provide a legal framework in respect of generation of FORM GSTR-2B based on the action taken by the taxpayers on the Invoice Management System (IMS).

'Auto-generated statement' changed to 'Statement'.

• To amend section 34(2) of CGST Act, 2017, to specifically provide for requirement of reversal of input tax credit as is attributable to a credit note, by the recipient, to enable the reduction of output tax liability of the supplier.

ITC reversal allowed only when -

(i) input tax credit as is attributable to such a credit note, if availed, has not been reversed by the recipient, where such recipient is a registered person; or

(ii) incidence of tax on such supply has been passed on to any other person, in other cases.

• To amend section 39 (1) of CGST Act, 2017 and rule 61 of CGST Rules, 2017 to provide that FORM GSTR-3B of a tax period shall be allowed to be filed only after FORM GSTR-2B of the said tax period is made available on the portal.

…. within such time, and subject to such conditions and restrictions.

1. To insert a new rule 67B in CGST Rules, 2017, to prescribe the manner in which the output tax liability of the supplier shall be adjusted against the credit note issued by him.[Yet to be prescribed]

2. Functionality of IMS

There are 3 options available on the portal to accept, reject or keep pending records which can be availed later but within timelines prescribed under Sec 16(4). Action can be taken on multiple records or all records at a time based on filters like GSTIN, Invoice type, Status and Source.

One of the features of IMS include Supplier's View - To review the actions taken by Recipients on their invoice and excel summary download option is also available.

Documents not forming part of IMS are

• RCM invoices
• Time-barred ITC u/s 16 of CGST Act, 2017
• Ineligible ITC due to POS issues e.g: Hotel invoices(other State)
• GSTR-5 by NRTP [will show directly in 2B]
• GSTR-6 by ISD [will show directly in 2B]
• ICEGATE Documents(Bills of entry) [will show directly in 2B]
• Rule 42/43 reversals; Supplier registration was cancelled from a prior date and ITC reversed under Rule 37A.[Will reflect directly in GSTR 2B of September month of the following FY]

Summary of action on records

Note - 2 months available to accept/reject a Credit Note. [Based on internet sources].

1. Impact of implementation of IMS

Since the actions taken in the IMS by the recipient has repercussions on the Supplier's liability, it is suggested not to reject the records that adds up to the liability of the Supplier without internal discussion and finalization.

Situations where the Pending Option is not available for the Recipient -

• Credit Note
• Credit Note - upward amendment
• Credit Note - downward amendment [other than when original CN was accepted]
• B2B/DN - Downward amendment [when original B2B/DN was accepted]

Further, keep track of QRMP invoices that flows in IMS on a Quarterly basis. Credit linked to suppliers GSTR 1 filing only and not IFF.

Action can be taken in IMS on a regular basis as data will be available based on E-invoice filing by suppliers. Although, if the supplier modifies such data, action taken will be reset.

The following action points may be considered for better flow of IMS functionality:

Supplier credit notes-If the CN is not in line with the GST provisions or the values are incorrect the same should be rejected in IMS. If the same is accepted and disclosed in 4B(2), ensure that Supplier has not reduced his output tax liability.[detailed practical cases of CN & illustrations provided below]

Eligible & Ineligible ITC - IMS no action will be considered as deemed acceptance. Disclosethe Eligible and Ineligible ITC respectively in Table 4 of GSTR-3B. Do not reject Ineligible ITC in IMS as it is mandatory to disclose under 4B(1) of GSTR-3B, since it impacts the revenue share between the Centre and State Governments.

Ineligible ITC-related CN - Original invoice to be accepted and such credit must be moved to permanent reversals (4B1) in GSTR 3B. Subsequent CN received must be accepted and the corrective action must be taken in (4A5 add back) in GSTR 3B to offset ITC reversal. [As per Additional FAQs on IMS by CBIC Q7].

Unclear ITC - Keep as pending in the IMS. Communicate with the Supplier and gain clarity. Otherwise, accept and disclose under temporary reversal 4B(2).

Value mismatch - Keep as pending in the IMS. Communicate with the Supplier and gain clarity. Otherwise, accept and ask for B2BA/DN or CN.

RCM liability will not show in IMS - Check in GSTR 2B, if the FCM invoice is posted as RCM invoice, inform the Supplier to amend the same.

Invoices don't pertain to the Recipient - Reject them. If not,the Department would ask the Recipient to update under 4B (1) of GSTR-3B.[we are seeing recent communications from Dept.]

Suppliers contact details not available - Use communication with taxpayer option in GST portal, raise grievance of mis-declaration.

Incorrect action taken in IMS - Make manual corrections while filing GSTR 3B. Have clear reasons and documentation for the same.

Invoice/DN rejected - liability can be reduced? - Where there is a supply, GST liability remains. Although, where supply is rejected/not accepted - goods returned/service not accepted, possibility to reverse liability may exists. [to be verified on case to case basis].

Internal Tracker - Maintain a tracker for adjustments and corrections performed. Details such as - GSTIN, Document reference, GSTR 3B month, IMS/2B month, Action/Adjustment done.

3. Timelines and recommended actions

4. System and personnel requirements

a. Taxpayer to have updated IT software and systems in place to reconcile the Invoices appearing on IMS and to automatically communicate with the Supplier/Recipient in case of any discrepancies.

b. Proper training needs to be given for the personnel involved in the procurement process and finance team.

c. Where front end teams are raising invoices, debit/credit notes it is important to provide training to them too. Modifying personnel group as required.

d. Terms and Conditions to be clearly mentioned on the Invoices/Purchase orders by the Supplier in cases where the recipient rejects the records without any proper reasons which leads to the additional liability to the Supplier.

e. Identity the transactions which involve frequent CNs, post-sale discounts, partial rejection of goods etc., and put them under periodic review.

5. Representation to CBIC/GSTN

1. Legality of Finance Bill, 2025 being put into LIVE environment with all implications by GSTN portal from Nov 2024 returns onwards up to timeline when such provisions are legally introduced into GST law (yet to become Act and then notified by way of Notification).

2. Legality of IMS mechanism where tax incidence is not passed on - ITC reversal not required, therefore, does not warrant liability add back. How and where does IMS consider such transactions? Ex: CN raised to cancel invoice not shared to any recipient.

3. Legality of Finance Bill, 2025 w.r.t liability added back to the supplier on B2B & DN - downward amendments as this is not part of Section 34 [Credit notes].

4. Invoice incorrectly accepted in IMS but ITC not claimed in GSTR 3B -Such credit may/may not have been claimed in Table 4C of GSTR 3B. Is declaration that such ITC is reversed in 3B sufficient proof? Will there be a restore option if accepted/rejected by mistake?

5. When original invoice and credit note - both rejected- such rejection must not lead to additional liability to the Supplier, nor should it lead to ITC reversal. Option to obtain confirmation from recipient before rejection to be introduced in the IMS module.

6. Credit note received from supplier, but not reflected in GSTR 2B yet (supplier delayed filing), is interest applicable for delayed ITC reversal? If ITC reversed in GSTR 3B suo-moto, later after supplier-uploading if rejected what solution is available?

7. Is IMS applicable to SEZ entities?

· For non-authorised operations - taxable transactions: should be applicable.

· For authorised operations - zero-rated supply - SEZWP only:

o Where the supplier is going for refund - should not be applicable as no tax paid by SEZ.

o Where SEZ is going for refund - should be applicable as taxes paid to the supplier.

8. Is IMS applicable on deemed export transactions where the supplier is going for the refund? - should not be applicable.

9. Remedial Action in GSTR-1A - Action taken in GSTR 1A to offset recipients' action in IMS would lead to further complications and difficulties. CBIC must clarify ideal transactions and various practical scenarios and their suggested actions which both supplier and recipient must take.

10. Amended Invoice actions -

i. Whether IMS will display action taken on an original invoice in case the said document was amended by supplier?

ii. Whether on the IMS dashboard the amendments appear as a net figure or a gross figure? [original inv - 100, amendment (20), net 80]

11. Other open issues w.r.t IMS:

a. The Supplier (Outward) IMS portal, which displays action taken on supplier records, does not allow for download nor viewing (> 500 documents). This is unfair considering it is LIVE on GST portal.

b. No rejection option for RCM invoices. Not constitutional, where supplier error exists.

c. Ineligible ITC - taxpayers may take route to disclose in B2C instead of B2B to avoid acceptance and disclosure under T4B(1) of GSTR 3B. [This impacts govt. ability to bifurcate their revenue].

d. Will there be a change in GSTR-3B format w.r.t. temporary reversals? What happens to Electronic Credit Reversal & Re-credit Statement as invoices can be kept pending.

e. Will there be an extension in the GSTR 3B due date considering the additional workload?

6. Illustrations - POV of Supplier

1. Tax invoice or Debit notes raised

2. Credit notes raised -GSTN may allow to keep CNs pending for 1 month.

3. Invoice rejected by the recipient and now required fresh invoice(both invoices in diff. months, assume CN raised in books to nullify original invoice)

4. Invoice raised and cancelled via Credit Note - Both issued in same month, not accepted by recipient

5. Invoice raised and cancelled via Credit Note - CN issued next month before filing GSTR-1

6. Invoice raised and cancelled via Credit Note -CN is issued after filing of GSTR-1 of Current month

- Alternate option:

7. Invoice issued for Rs. 100 and partially cancelled Via Credit note for Rs. 20 where Recipient booked the invoice at net Rs. 80

- Where Invoice is amended to Rs. 80

8. Invoice raised but accepted partly by the recipient. Debit note was raised for the remaining by the recipient and reported in GSTR-1

7. Illustrations - POV of Recipient

1. Invoice/Debit note/Upward amendment of records - Appearing in IMS and accounted in Books

2. Invoice/Debit note/Upward amendment of records -Appearing in IMS but not accounted in Books

3. Invoice recorded in books but not appeared on IMS Portal - Maintain a reconciliation of invoices not appearing on IMS Portal and communicate with the supplier on periodic basis. Once matched, follow above steps.

Practical scenarios -

a) Quarterly filers (displays in IMS based on GSTR 1, not IFF)

b) Supplier GSTIN Suspended

c)Supplier disclosed same in different GSTIN/B2Cs incorrectly.

4. Invoice appeared in IMS Portal matched with books but is ineligible Ex: Invoices related to food & beverages, purchase of motor vehicle, personal expenses, building under construction, etc

5. Document matched on IMS & Books with some minor gaps (other than tax amounts)

6. Credit Note matched with books appearing in IMS(same month) -Accept in IMS - Reduce from Table 4A(5) - All Other ITC while filing GSTR 3B.

7. Credit Note appeared in IMS on current month but not yet recorded in books

8. Credit notes recorded in Books but not in IMS in the same month - Reversal to be made only when supplier credit notes are available on the portal, interest may apply. Once CN appears in IMS, follow point 6.

Alternately, manually adjust in GSTR-3B in current month, and accept the CN and reverse the impact in GSTR 3B (as already adjusted in previous month).

9. Mismatch in invoice appearing on IMS with that recorded in books

Books (Rs 120) > Portal (Rs 100)

10. Mismatch in invoice appearing on IMS with that recorded in books

Books (Rs 100) < Portal (Rs 120)

11. Credit Note appeared in IMS knocking off with invoices pending* on IMS. Invoice could be of same month or pending from earlier - still unmatched with books

12. Invoices appearing in IMS but are ineligible and not recorded in books

Note - The above illustrations cover all the important transactions although may not be exhaustive!

Conclusion

The IMS system although practically LIVE in the GSTN environment does not have a place in law until the Finance Bill placed in the Budget is legally introduced into the GST law. IMS in the initial period would lead to significant disputes and litigation. The Govt. plans on resting the tax disputes in the hands of the supplier and recipient directly. There are many situations which warrant to modification of the present system and also a modification of the GST law as presently certain instances indicates the GST portal acting over and above the CGST Act. Representations by Industry and taxpayers alike must be made bringing to light implementation and practical difficulties and possible solutions!

Supplier and Recipient must communicate and crystalise on documentation process which will be undertaken in case of modifications/rejections/returns/etc.. to have a smoother IMS process.

Disclaimer: The views expressed in this article are personal to the authors and are an attempt to interpret the developing GST law. Certain suggestions provided are considering practical difficulties rather than legal recourse. We recommend professional assistance where required.

The authors can also be reached at mahadev@hnaindia.com & akshay@hnaindia.com