Invoice Management System (IMS) was introduced in October 2024; since then, it has gradually become an essential process to ensure GST compliance, streamlining the reconciliation process between supplier’s GSTR-1 and recipients’ GSTR-3B. IMS provides transparency in ITC claims by providing a platform where invoices and other related documents can be verified, accepted, or rejected in real time.
As the IMS is newly introduced, there are a lot of queries and discussions going around about its workflow and practical implications, specifically when invoices or credit notes are erroneously accepted or rejected, and suppliers amend invoices after the recipient’s action.
This blog delves into the critical aspects of IMS through insights derived from commonly asked questions, offering businesses a clearer understanding of its practical implications.
Legal backing of IMS: Is it supposed to be mandatory?
Currently, IMS is operational, but it is not yet mandatory. According to the GST Council’s 55th meeting, recommendations were made to introduce a legal framework for IMS in the upcoming Union Budget 2025 and will be implemented from April 2025 Once these changes are incorporated into the GST law and rules, clarity on the mandatory implementation of IMS will follow. For now, records with no action are deemed accepted, and GSTR-2B is generated accordingly, as per the latest updates.
IMS Data workflow
IMS fetches invoices or credit note details based on the supplier’s GSTR-1. This means that whenever e-invoices are generated, IRP pushes data into GSTR-1, and the GST data is saved in GSTR-1 as a draft based on the IRN generated. The saved data is pushed to IMS for the recipient to take action.
Further, whenever the data saved based on IRN is changed by the vendor in the GSTR 1 module there will be a difference between the invoice details as per the IRN and the GSTR-1. However, the changed value as per the GSTR-1 will prevail and reflect in IMS. If suppliers amend invoices after recipients have taken action in IMS, the recipient’s action will be reset, and they must act again on the updated record.
Additionally, once GSTR 1 has been filed, it can be amended through GSTR-1A or GSTR-1 in subsequent months. The same will flow to IMS, and a separate action is required for such amendments. The ITC corresponding to the same will flow in GSTR-2B of the recipient, which will be generated for the subsequent month only.
Furthermore, if any invoices or credit notes are not saved in GSTR-1 then the particular invoice or CN will not be reflected in the IMS records of that month as IMS only reflects records that are saved in GSTR-1/IFF/GSTR-1A.
If any invoices or credit notes are not filed in the GSTR-1 on the 11th of the respective month, the said invoice or credit note will not reflect in GSTR-2B of that particular month.
Now, once the recipient accepts the invoice or credit note, it will flow to GSTR-2B, subject to the condition that the vendor files the GSTR 1 by the due date. If the return is not filed even though the data is saved in GSTR-1, the transaction data will stay in IMS irrespective of the action taken, and it will flow to GSTR 2B based on the filing date of the corresponding GSTR 1.
However, if the other conditions under Section 16 (such as receipt of goods/services or the invoice) are not yet fulfilled at the recipient’s end, the credit of such invoices is hitherto temporarily reversed in GSTR-3B and reclaimed once the Section 16 conditions are met.
Under IMS, such invoices should ideally be marked as “Pending” to prevent them from flowing to GSTR-2B until the Section 16 conditions are fulfilled. This approach helps ensure compliance and avoids the need for manual reversals and subsequent adjustments.
Effect of erroneous action taken in IMS
Rejection of Invoices- If the recipient rejects the invoice, the liability of the supplier will remain unchanged since the tax was already reported and paid in GSTR-3B., but the value of ITC will not flow to the recipient’s GSTR-2B.
Rejection of Credit Note- If the recipient rejects the credit note, the supplier’s liability will not be reduced; it will remain as per the original invoices. The reduction on liability claimed through credit note shall be added back to the liability of the supplier in the GSTR 3B of the next month
Invoices and credit notes rejected in IMS will not flow into the recipient’s GSTR-2B, affecting Input Tax Credit (ITC) claims and compliance. However, the rejected invoice and credit note will not have direct impact on GSTR-1A.
In the absence of linkage of the Credit Note with the corresponding invoices, it is not possible to know the source invoice details from the credit note. System cannot understand whether original invoice for a particular Credit Note was accepted or rejected.
Rejected documents cannot be re-pushed in IMS but can be amended in GSTR-1 for later periods. Proactive reconciliation and coordination with recipients are crucial.
Implications When a Customer Rejects the Original Invoice and Credit Note but Accepts a Re-Billed Invoice- If a customer rejects both the original invoice and the corresponding credit note but accepts a re-billed invoice, the supplier’s GST liability is impacted as follows:
- Original Invoice: The GST liability remains unchanged.
- Credit Note: If the customer rejects the credit note, the supplier cannot adjust the tax liability from the original invoice, meaning the tax obligation remains as initially reported.
- Re-Bill Invoice: Once accepted by the customer, the tax liability for this invoice is also recorded in GSTR-1.
This creates a situation where the GST liability for the same supply is effectively reported twice once under the original invoice (which remains valid due to the rejected credit note) and again under the re-billed invoice.
Such discrepancies should ideally be rectified by amending the original invoice in GSTR-1 instead of issuing a credit note. However, amending an e-invoice can create discrepancies with the Invoice Reference Number (IRN) data, rendering the document invalid under GST law.
To avoid such issues, it is crucial to establish clear communication with customers regarding credit note handling. Additionally, internal teams should be properly trained to manage such corrections efficiently and in compliance with GST regulations.
Partial rejection of goods-
When a supplier issues invoices for the supply of goods and a customer rejects a partial quantity of goods out of the total quantity and accordingly takes proportionate ITC without informing the supplier. In such cases, The business process for handling rejected goods remains unchanged with IMS.
However, Since the customer had initially rejected a few quantities, it can be said that the conditions specified under Section 16 for such proportionate items were not met. Accordingly, in such cases, in terms of Circular 170/02/2022 dated 6 July 2022, the recipient should accept the full invoice in IMS and make a temporary reversal for the rejected quantity. Then the recipient should communicate the rejection to the supplier, and the supplier should issue a credit note for the rejected goods. Whenever the supplier issues the CN, the ITC for temporary reversal should be reclaimed, which will set off against the CN issued.
Steps to follow post Rejection of invoices or CN
Suppliers can amend the invoice or credit note in GSTR-1/GSTR1A/IFF to correct the details and ensure they are reflected accurately in IMS. (However, amending e-invoices instead of credit notes would result in a difference with IRN data and documents uploaded on GSTN would be rendered invalid for the purpose of GST Law); or
If the rejection is due to incorrect issuance or applicability, issue a new invoice or credit note. The amended or newly issued document will then flow to IMS for the recipient’s review and fresh action. Further, it is vital to note that one can change IMS actions until GSTR 3B is filed. Once GSTR 3B is filed, the IMS actions are frozen.
IMS limits corrections before GSTR-3B filing, though the GST law allows them until 30th November of the subsequent FY. The restriction in IMS is a process-level limitation and not a change in the statutory deadline arising from system design rather than a legal amendment.
In summary, an invoice/CN rejected in IMS will not flow into GSTR-2B, and the recipient cannot claim ITC. Additionally, since the supplier has already reported the invoice/CN in GSTR-1 and paid the net liability in GSTR-3B, it is impossible for the supplier to re-report the same invoice/CN in GSTR-1. The supplier might have to amend the invoice/CN and submit it for reacceptance, which might lead to non-compliance with the IRN, or the supplier has to issue a new document. Therefore, the rejection of invoices/CN must be handled carefully to avoid such issues.
Linkage Invoices with Their Corresponding Credit Notes
Scenario-1
If a supplier issues an invoice and later issues a credit note (CN) for the same amount in the next month, but the finance department has not received the invoice data, it becomes difficult to trace which credit note corresponds to which invoice in GSTR-2B.
Without a clear linkage between the credit note and the original invoice, the system cannot determine whether the invoice related to a particular credit note was accepted or rejected. This lack of visibility can create reconciliation challenges, making it essential to establish a structured process for linking invoices and credit notes within internal records.
Scenario-2
If a credit note linked to an invoice is already categorized as blocked credit, where no ITC was claimed, the circular allows for acceptance without requiring ITC reversal. Since the original invoice was declared as block credit, ITC was never availed. However, accepting such a credit note in IMS may lead to an unnecessary reduction in ITC.
This results in a mismatch between GSTR-2B and GSTR-3B, as GSTR-2B will reflect a lower ITC amount than what was actually claimed in 3B. To address this discrepancy, businesses should:
- Regularly reconcile GSTR-2B with GSTR-3B to track such differences.
- Document the reason for the mismatch to maintain compliance and justify deviations during audits.
- Ensure such credit notes are excluded from 3B calculations to prevent incorrect ITC adjustments.
A structured reconciliation approach will help avoid unnecessary ITC reductions and ensure accurate reporting.
IMS Dashboard Insights and Functionalities
Tracking Rejections:
As a supplier, a taxpayer can monitor rejected invoices and credit notes using the “Supplier View” in the IMS dashboard. This provides live data, including details of recipient actions on documents.
As a recipient, a taxpayer will have an “inward supply” view to see all the specified documents saved or filed by your respective supplier. The recipient will be able to access these documents and take action.
Data Accessibility:
Suppliers handling large transaction volumes can download outward supply data and recipient actions in Excel format. However, this functionality is currently limited to recipient actions.
Pending Actions:
According to current guidelines, credit notes or downward credit notes cannot remain pending. Suppliers must ensure timely acceptance or rejection of credit notes. Invoices with pending action will not flow to GSTR-2B.
If a Purchase Return Credit Note (CN) is issued in one month but recorded by the finance department in the next month, it can lead to a mismatch between the Finance Ledger and GSTR-2B.
Having robust automation for real-time recording invoices/credit notes can avoid situations where there can be a mismatch between GSTR-2B and financial records.
How Cygnet can help in IMS compliance
Cygnet’s comprehensive Invoice Management System module provides the following unique functionalities
- Direct integration with ERPs, including SAP.
- Provides the facility to reconcile IMS data with PR.
- Advanced AI-based reconciliations
- Bulk IMS actions based on reconciliation status
- There is no limit on the number of transactions for viewing or taking actions
- Auto fetching of IMS transactions, pushing bulk actions to the GSTN portal, and generation of GSTR 2B
Conclusion
The introduction of the IMS marks a significant step forward in enhancing GST compliance and streamlining reconciliation between suppliers and recipients. However, its implementation is complex, particularly in managing rejected invoices and credit notes. Businesses must stay vigilant about accurately reflecting transactions in IMS, as errors can directly impact tax liability and ITC claims.
To mitigate issues, suppliers and recipients should prioritize clear communication, timely action on documents, and rigorous reconciliation of records. As IMS evolves and potentially becomes mandatory shortly, businesses must stay updated on regulatory changes, adapt workflows, and train relevant teams to ensure seamless compliance with GST laws. A proactive approach to handling invoices, credit notes, and their corresponding actions will minimize non-compliance risks and enhance operational efficiency in the long run.
