Invoice Management System may add compliance for GST assesses, say tax experts

The effort to enhance Input Tax Credit (ITC) ecosystem through Invoice Management System (IMS) may add additional layer of compliance to GST assesses, tax experts have said.

According to GST portal, this new system intends to facilitate taxpayers in matching their records/invoices vis-à-visissued by their suppliers for availing the correct ITC. Taxpayers can now make use of this facility to seamlessly accept, reject, or keep invoices pending in the system to avail later as and when required. The first GSTR-2B (an auto-populated ITC, generated by the GST portal for every normal taxpayer) on the basis of actions taken in IMS would be generated for the return period October on November 14.

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Experts feel while the intention of IMS has been stated to reduce the notices on account of input tax credit mismatch, it will certainly add to the compliance activities of the taxpayers along with the existing input tax credit reconciliation prior to finalizing their GSTR 3B. Also, IMS in its current form doesn’t provide flexibility to partially accept, reject or keep pending the transactions. At the same time, the current form of IMS is the recipient-centric and it would require a supplier-side of the dashboard and visibility.

“IMS may have its own benefits in terms of better input tax credit management, however, its adaption may lead to an additional layer of compliance, as input tax credit reconciliations are anyways being done by taxpayers prior to finalizing their GSTR 3B,” said Harpreet Singh, Partner, Indirect Tax, Deloitte

Another issue is credit notes (CN). Vivek Jalan, Partner with Tax Connect Advisory Services say these are the most critical feature of IMS which will impact all taxpayers. “In case the supplier issues a credit note (CN) reversing his GST liability, the supplier either has to accept or reject the CN. He has no option to keep the CN pending,” he explained. For example, the supplier issues the CN on October 31 and recipient receives and accounts for the same on November 2, then ideally, he has to reject the CN in the return for the month October, as on October 31.

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“If recipient rejects the credit note due to this mandate of IMS, then the supplier has no option but to pay the corresponding GST, which he ideally is not be liable to pay. This serious financial implication should be addressed by GSTN within next week itself, else it might lead to hardship for all taxpayers,” Jalan said. Adding to this, Singh opined thar deemed acceptance of credit notes in case of no action, is a point of concern as the same can lead to ITC reversals for recipients. Also, “inadvertent rejection of credit notes could unjustly inflate supplier tax liabilities,” he said.

According to GST Network (IT backbone of indirect tax system), IMS is an optional functionality, and the recipients are not mandated to take an action. In case no action is taken, all the transactions in IMS will be considered as deemed accepted. A committee will be formed by the GSTN comprising of trade representatives to take suggestions on IMS and highlight open issues pending clarifications. Reverse charge, import related entries (i.e. from ICEGATE and DGFT portals) will flow directly to Form GSTR-2B and will not be a part of IMS, it said.