Exemptions under Invoice Management System (IMS)

Once fully active, the Invoice Management System (IMS) will revolutionise the GST Input Tax Credit (ITC) claiming process. It's raising much hope among taxpayers regarding ease of GST compliance, automation of the ITC claim process and real-time updates on the action status of invoices taken by recipients. But do you know it will not process a few of the invoices of specific types? 

This article discussed transitions that will not be included in the invoice management system. 

Types of transactions and invoices not included in IMS

As per the advisory on IMS, the dashboard provides a detailed summary of all inward B2B invoices for recipient users. They can accept an invoice for an ITC claim, reject an invoice for discrepancies, or keep an invoice pending for future consideration.   

However, there are specific types of B2B transactions for which invoices will not appear in the IMS dashboard. However, these invoices will appear directly in the user's GSTR-3B. 

These types of transactions are:

• Inward RCM supplies: In GST, the supplier pays the tax to the government after collecting it from the recipient for the supply of goods, services, or both. RCM, or Reverse Charge Mechanism, is an incident of GST taxation in which the liability for tax payment falls on the recipient. The following sections govern the provisions of the Reverse Charge Mechanism: 
  • Section 9 (3) of the CGST Act and section 5 (3) of the IGST Act: Supply of certain goods and services specified by the CBIC.
  • Section 9 (4) of the CGST Act and Section 5 (4) of the IGST Act: Supply from an unregistered dealer to a registered dealer.
• Supplies ineligible for ITC u/s 16(4): Under this section, a recipient cannot claim ITC for the supply of goods, services or both received after the earliest of the following dates: 
  • 30th day of November, following the financial year in which the invoice for the supply pertains 
  • Actual date of filling the annual return for the financial year in which the invoice for the supply pertains 
• Document flowing from forms GSTR 5 and GSTR 6 
  • Form GSTR-5 is the return filed by non-residential taxable persons. For ease of business in India, they can register with the GST system for a short period not exceeding 90 days. 
  • Form GSTR-6 is the return that an office (of a company) files for the distribution of ITC among its registered branch units. To do so, the company must register as an Input Services Distributor (ISD) under GST. For example, a manufacturing company, XYZ Ltd, can have a corporate office in Kolkata with manufacturing units in Patna, Bhubaneswar, and Kanpur. The corporate office will be registered as an ISD. 
• ICEGATE documents: Indian Customs Electronic Commerce/Electronic Data Interchange Gateway (ICEGATE) is an electronic platform that facilitates the sharing of documents between customs authorities and traders. Examples of such documents include shipping bills, invoices, bills of entry, etc. 
• Documents where ITC is to be reversed on account of Rule 37A: As per Rule 37A of the CGST Rules, a recipient who has claimed or availed an ITC in its GSTR-3B has to refund the amount of credit realised if the supplier fails to pay the tax or submit supporting evidence of tax payment. 
• Supplies restricted for ITC under the POS rule: POS or point of supply rule determines whether a supply is part of an international trade, an inter-state or an intra-state supply. Per this rule, if the place of supply and the supplier's address are the same but the recipient's address is different, that transaction will be ineligible for ITC. For instance, the employee's hotel room booking is in the corporate account.

Reasons for Exclusion

The reasons behind the exclusions of these transactions and invoices related to these transactions from the purview of the IMS dashboard are: 

• Inward RCM supplies—Under the RCM, the recipient is responsible for paying tax, not the supplier. Since the IMS primarily focuses on reconciling outward supplies reported by the supplier, RCM inward supplies are excluded because these transactions are captured and reported by the recipient.
• Supplies ineligible for ITC - IMS aims to streamline the process of ITC claims. So, supplies that are not eligible for ITC cannot appear in IMS. After the deadline u/s 16(4), these supplies lose relevance for ITC purposes, making their inclusion unnecessary.
• Supply by a person in a non-taxable territory - These are imported goods and services for which suppliers are not taxable. The GST liability is on the recipients. 
• Invoices from ISD and temporary registered taxpayers -
  • ISD taxpayers file invoice details in the GSTR-6 form to distribute credits to their branches. As far as IMS is concerned, it is focused on streamlining B2B invoices.
  • Temporary taxpayers get registration for not exceeding 90 days. Their invoicing requirements can differ significantly from those of domestic businesses. Incorporating such invoices into IMS may require additional considerations.  
• Supplies restricted for ITC under the POS rule- Supplies where ITC is ineligible due to the Place of Supply (POS) rule (i.e., where the place of supply and the supplier's state are different from the recipient's state) are excluded because the recipient cannot claim ITC in such cases. For example, a hotel stay booked in one state for a corporate account may not be eligible for ITC if the recipient's business is registered in another state.

Consequences of missing transactions and invoices

One significant purpose of IMS is to streamline ITC claim processes. Including these supplies in IMS would add unnecessary transactions that do not contribute to ITC claims. The portal automatically populates GSTR-2B and GSTR-3B with data from missing invoices, so users do not have to file them in return manually. 

Preventative solutions

IMS added an additional layer to the existing reconciliation process. Earlier, taxpayers relied on accounting software or spreadsheets to reconcile their purchase register with GSTR-2B to claim ITC. But now, they must reconcile their invoices with IMS before they flow to their GSTR-2B.

Since IMS currently only allows recipient taxpayers to take action on B2B transactions and disallows them to act on certain specific transactions, including RCM and ISD invoices, taxpayers must verify such invoices separately for claiming and availing true ITC.