On September 3, 2024, the GSTN issued an advisory regarding the new Invoice Management System (IMS). While this announcement comes ahead of the 54th GST Council meeting on September 9, 2024, it brings a sense of déjà vu, echoing previous systems like GSTR-1, GSTR-2, and GSTR-3 from the early days of GST. Despite the refreshed packaging, the core structure remains remarkably familiar, invoking the saying “old wine in a new bottle.”
Let’s explore both the history and the recent updates to this system, and assess their potential impact on GST compliance.
The Historical Context: GSTR-1, 2, and 3
When GST was introduced in 2017, its compliance framework was ambitious, featuring various filing forms designed to simplify tax data exchange between suppliers and recipients. Here’s a quick overview of the expectations:
- GSTR-1: Taxpayers must submit details of outward supplies by the 10th of the following month.
- GSTR-2A & GSTR-2: Recipients could review and process supplier-submitted invoices by accepting, rejecting, or modifying the entries.
- GSTR-1A: Suppliers can review the changes made by recipients and choose to either accept or undo them.
- GSTR-3: Submit this form by the 20th to summarize your tax liabilities and credits.
However, technical issues and system limitations previously caused the shelving of this complex return mechanism. Fast forward to 2024, and the new IMS essentially reintroduces many of the features from the earlier system, albeit in a revamped form.
The IMS: What’s New?
While its structure remains familiar, the IMS incorporates several contemporary updates designed to overcome previous limitations:
Key Features of the New Invoice Management System
- Instant Reflection of Invoices: Suppliers’ saved invoices are immediately visible on the recipient’s IMS dashboard, allowing real-time tracking.
- Recipient’s Provisional Actions: Recipients can act on invoices by accepting, rejecting, or marking them as pending.
- Amendments by Suppliers: Any amendments made by the supplier in GSTR-1 automatically update the invoice in IMS.
- Outward Supply Filing: Suppliers must file GSTR-1 or the Invoice Filing Facility (IFF) by the 11th/13th of the following month.
- Auto-Population in GSTR-2B: Invoice details populate the draft GSTR-2B once the supplier files GSTR-1, with the recipient reviewing it by the 14th of the month.
- Actions Impacting ITC in GSTR-3B: Recipient actions, such as accepting, rejecting, or marking invoices as pending, directly affect the Input Tax Credit (ITC) in GSTR-3B.
Recipient’s Actions and Their Consequences
- Accepted Invoices: These populate GSTR-2B, and ITC can be claimed in GSTR-3B.
- Rejected Invoices: These are excluded from GSTR-2B, making them ineligible for ITC.
- Pending Invoices: These remain in the system for future action and ITC cannot be claimed in the current period.
- No Action (Deemed Acceptance): Invoices are auto-accepted for GSTR-2B purposes, allowing the recipient to claim ITC.
Managing ITC and Return Filing with IMS
- Re-computation of GSTR-2B: Before filing GSTR-3B, the system will re-compute GSTR-2B, considering all actions on invoices. This prevents mismatched ITC.
- Impact of Amendments: If a supplier amends an invoice after filing GSTR-1, the updated invoice reflects in the recipient’s IMS, but ITC claims will only occur in the following GSTR-3B.
Additional IMS Updates
- Quarterly Filers: GSTR-2B will be issued quarterly instead of monthly for taxpayers who file on a quarterly basis.
- Restrictions on Pending Actions: Some transactions, like credit notes and amendments, cannot be set as pending, ensuring revenue interests are safeguarded.
- Supplies Excluded from IMS: Certain inward supplies subject to reverse charge (RCM) and ineligible ITC under Section 16(4) will be reported directly in GSTR-3B and will not appear in the IMS.
Anticipated Challenges and Implications for Taxpayers
Though the new system is designed to simplify compliance, taxpayers should prepare for a learning curve. The IMS will launch on October 1, 2024, with GST returns for September processed under the current system. Professionals will be closely monitoring the transition to ensure a smooth integration.
Additionally, the advisory confidently states that IMS will enable taxpayers to confirm the authenticity of received invoices. Following the previous withdrawal of GSTR-2 and GSTR-3, several challenges emerged, including:
- Show-cause notices (SCNs) alleging mismatched ITC
- Allegations against recipients involving non-genuine suppliers or paper trade
With IMS in place, the aim is for genuine taxpayers to encounter fewer legal obstacles, while a strong ITC-locking mechanism will provide enhanced protection.
This isn’t the government’s first try at a GST return-locking system. Previous efforts with the GSTR and ANX models encountered technical issues. However, with advancements in technology and increased experience, the IMS rollout is anticipated to be more successful.
Moreover, both taxpayers and professionals are optimistic that, once the system becomes stable, the extended 42-month timeline for issuing SCNs (introduced under Section 74A) could be reevaluated.
In summary, the new Invoice Management System may seem like “old wine in a new bottle”, reviving familiar aspects of past GST return systems. Nonetheless, its enhanced real-time features and advanced ITC management tools are set to facilitate a more efficient compliance process. The ultimate effectiveness will become clear once the system is operational, with all stakeholders – from taxpayers to tax authorities – needing to stay alert during the transition.