The Impact of Invoice Management System

Everything You Need to Know about GST’s Invoice Management System (Effective Oct 2024)

Under the old system of GST framework relating to credit notes a supplier should issue a credit note to reduce his tax liability. But the recipient could independently opt for to reverse the Input Tax Credit (ITC) claimed on the invoices related to the Credit Notes. It’s caused discrepancies, where the recipient failed to reverse the Input Tax Credit (ITC), due to this Government is losing revenue. To enhance the transparency and accuracy in ITC claims, reducing discrepancies in tax filings in 55th GST Council has made certain recommendations to amend Section 38 and Rule 60 to provide a legal frame work in relation to the generation of Form GSTR-2B based on the action taken by the taxpayers on the Invoice Management System (IMS).

Concerning the above, a new facility “Invoice Management System” is now available to taxpayer from 1^st Oct 2024 onward on GST Portal. This facility provides the taxpayers an opportunity to review the genuineness and authenticity of the received invoices/Debit Note/Credit Note on GST Portal before claiming Input Tax Credit in Monthly GSTR 3B return by Accepting/ Rejecting /Pending action taken on GST Portal.

Understanding of New Change:

It is clearly mentioned in advisory issued on 03.09.024 in relation to IMS that “Pending” action will not be allowed in the following scenarios, as-

a)    Original Credit note

b)    Downward amendment of Invoice/ Debit note rejected by the recipient where original Invoice/ Debit note was accepted by him and respective GSTR 3B has also been filed.

It means If the recipient rejected the above mentioned documents on the IMS Portal, then the liability of supplier will be increased in GSTR 3B for the subsequent tax period. Consequently, there will be a mismatch between the liability paid in GSTR-3B and liability available in books.

If a recipient rejects a credit note on the IMS portal, the supplier must adjust their return liability accordingly to ensure it matches their books. Here’s how they can do it:

1.   Check IMS Status – The supplier should verify the rejection status in the IMS dashboard to confirm the recipient’s action.

2.   Update GSTR-1 – Since the credit note was rejected, the supplier cannot reduce their output tax liability based on it. They must ensure their GSTR-1 filing reflects the correct taxable amount.

3.   Reconcile Books – The supplier should reverse the credit note entry in their accounting system and ensure the tax liability matches the actual invoices accepted by recipients.

4.   Adjust GSTR-3B – When filing GSTR-3B, the supplier must exclude the rejected credit note from their tax calculations to avoid discrepancies.

5.   Communicate with Recipient – If the rejection was due to an error or misunderstanding, the supplier can reach out to the recipient to resolve the issue and possibly issue a revised credit note.

Here’s an example scenario of a rejected credit note in the GST Invoice Management System (IMS):

Scenario: Credit Note Rejected by Recipient

• Supplier: ABC Pvt Ltd
• Recipient: XYZ Traders
• Invoice Amount: ₹1,00,000
• GST Rate: 18%
• Original Tax Liability: ₹18,000
• Credit Note Issued: ₹20,000 (including ₹3,600 GST)
• Reason for Credit Note: Goods returned due to defects

What Happens?

1. Supplier uploads the credit note in their GSTR-1 for the month.
2. Recipient sees the credit note in their IMS dashboard and rejects it due to incorrect details (e.g., wrong invoice reference or amount mismatch).
3. Impact on Supplier:
• The credit note does not reduce the supplier’s tax liability.
• The ₹3,600 GST reversal does not reflect in GSTR-3B.
• The supplier must adjust their books and issue a corrected credit note if needed.

How to Fix It?

• Supplier contacts the recipient to understand the reason for rejection.
• If the rejection was due to an error, the supplier issues a revised credit note and uploads it in the next month’s GSTR-1.
• The recipient accepts the corrected credit note, allowing the supplier to adjust their tax liability.

Handling a rejected credit note on the GST IMS portal requires careful reconciliation to ensure compliance and accurate tax reporting. Here’s what you can do:

Steps to Handle a Rejected Credit Note

1. Check the Rejection Reason – Review the rejection details in the IMS dashboard to understand why the recipient rejected the credit note.
2. Communicate with the Recipient – Reach out to the recipient to clarify the issue. If it was rejected due to incorrect details, you may need to issue a revised credit note.
3. Revise and Re-upload (if applicable) – If the rejection happened before filing GSTR-1, you can edit and re-upload the corrected credit note in the same month’s return.
4. Adjust GSTR-3B (if already filed) – If the rejection occurred after filing GSTR-1, the tax liability adjustment will reflect in the next month’s GSTR-3B.
5. Issue a Corrected Credit Note – If necessary, issue a new credit note in the next month’s GSTR-1, ensuring the recipient accepts it.
6. Reconcile Books – Update your accounting records to match the revised tax liability and ensure compliance with GST regulations

 

To avoid credit note rejections on the GST IMS portal, follow these best practices:

1. Ensure Accurate Details

·         Verify that the invoice reference number matches the original invoice.

·         Ensure the credit note amount is correctly calculated, including GST.

·         Double-check the GSTIN of the recipient to avoid mismatches.

2. Communicate with the Recipient

·         Inform the recipient before issuing a credit note to ensure they are aware.

·         Clarify the reason for the credit note to avoid unnecessary rejections.

3. Follow GST Compliance Rules

·         Issue credit notes within the allowed time frame as per GST regulations.

·         Ensure the correct tax rate is applied to the credit note.

4. Use IMS Dashboard for Reconciliation

·         Regularly check the IMS portal for recipient actions on invoices and credit notes.

·         Address any discrepancies before filing GSTR-1 to prevent mismatches.

5. Avoid Frequent Amendments

·         Ensure the first credit note submission is accurate to prevent multiple revisions.

·         If an amendment is needed, coordinate with the recipient before re-uploading.

Kindly refer to advisory and FAQ’s issued related to IMS portal for detail explanation on various types of rejections and their solution.

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