Invoices submitted by suppliers through GSTR-1 would be displayed on dashboard to taxpayers. The system will allow taxpayers to accept, reject, or mark invoices as pending - particularly useful when discrepancies arise between reported invoices and the taxpayer's purchase register, say Kanchan R Umranikar, Director and Pranjali Tendulkar, Senior Consultant, Ernst & Young LLP, India

The evolution of the GST compliance framework has been marked by continuous advancements and the latest stride in this journey comes from the 54th meeting of the Council, which has proposed a significant transformation with the introduction of the Invoice Management System (IMS) alongwith other recommendations.

IMS is indeed a pivotal move to enhance the efficiency and transparency of credit availment under the GST framework. It is proposed to be launched from October 1, 2024. This move is expected to streamline the credit management process, providing taxpayers with a centralised dashboard for invoice reconciliation on the GST portal. 

Invoices submitted by suppliers through GSTR-1 would be displayed on dashboard to taxpayers. The system will allow taxpayers to accept, reject, or mark invoices as pending - particularly useful when discrepancies arise between reported invoices and the taxpayer's purchase register. In the absence of any action by the taxpayer, the system will default to treating the invoices as “deemed accepted” at the time of GSTR 2B generation.

For specific transactions like credit notes and amendments, IMS would compel the recipients to accept or reject without delay, eliminating the option to defer decisions. A rejection escalates the supplier's tax liability in the subsequent GSTR-3B filing. 

The IMS's core aim is to enable users to verify the commercial validity of transactions, without considering the eligibility of credit. For example, recipients must acknowledge credit notes for transactions where ITC was not claimed on original invoice or for invoice with ineligible ITC, based on the transaction's commercial integrity, even if it is not to be considered in GSTR-3B. Taxpayers will determine ITC basis eligibility under GST laws at the time of filing GSTR-3B.

With the implementation of the IMS, changes in GSTR-3B format can be expected. Firstly, the requirement for "Temporary reversal" of credit, as depicted in Table 4B(2), may become obsolete as transactions can be marked as "Pending" in the IMS. Secondly, there would be a need for an additional table in GSTR-3B to reflect credit notes that have commercial validity but are not to be considered for ITC in GSTR-3B as credit was not availed on original invoice. This addition will ensure that all transactions are accounted for, even if they do not affect the ITC computation. Impact of IMS on the accounting methodology needs to be evaluated wherein GST portion may have to be accounted for separately before posting in ITC ledger or expensing out.  

A one-time opportunity is presented to taxpayers to declare their opening balance, with the due date set for October 31, 2024. This balance should include only those transactions that are pending from the last tax period and are eligible as per the time limit stipulated under section 16 of the CGST Act. Taxpayers must be cautious with the amounts entered as opening balances, as the ITC availed during subsequent year cannot exceed the sum of the opening balance and invoices accepted or deemed accepted on the IMS system during such year. Looking ahead, the necessity for manual entry of opening balances may not be required as the IMS is anticipated to have the capability to automatically calculate these amounts based on transactions that the recipient has earmarked as "pending" subject to time limit under section 16 of CGST Act. This prospective feature of the IMS would show the system's evolving sophistication and its potential to streamline the tax compliance process further.

Despite its optional label, the IMS's inherent impact makes it virtually mandatory for compliance, demanding real-time invoice reconciliation and cross-functional collaboration.

Legal concerns over IMS's implementation without legislative backing may lead to amendments in next Finance Bill. As the industry seeks possible deferral, we may witness industry representations being filed to clarify on legal validity of IMS.

Should the government maintain the proposed timeline for IMS, taxpayers will face the challenge of adhering to both the new system and the existing timelines for annual compliances and compulsory implementation of ISD mechanism. 

This evolving tax compliance landscape is undeniably pushing taxpayers towards digital transformation, necessitating the automation and integration of various business processes. The taxpayer has to ensure complete collaboration between AP, Procurement, Tax and Finance teams.

1. A pilot for B2C e-Invoicing is set to be launched post successful implementation of e-invoicing for B2B and export invoices. This initiative is expected to significantly reduce the prevalence of fictitious invoices and establish a comprehensive record of all sales transactions for taxation purposes.

2. A recommendation to increase the GST rate for car seats from 18% to 28% could impact the auto industry's pricing structure. This rate revision is intended to align with the GST rate on seats of two-wheelers and will be applied prospectively upon the issuance of a government notification.

3. Renting of commercial property by an unregistered person to a registered person will be brought under Reverse Charge Mechanism (‘RCM’). This strategic shift is designed to address the issue of tax leakage by ensuring to capture tax payments that might otherwise go unreported. Moreover, this change has the potential to facilitate inter-departmental collaboration, particularly benefiting the Income Tax Department by providing precise data on rental income received by unregistered landlords.

4. The Council has recommended bringing supply of metal scrap from an unregistered to a registered person under RCM. A 2% TDS to be applied on B2B transactions of metal scrap. The specifics regarding the minimum contract value for TDS applicability will be clarified in notification. This move may lead to additional compliance requirements. Controversies around the classification of mixed scrap to continue.

5. The Council has made several other recommendations that span across various sectors and aspects of the GST framework. 

In conclusion, the 54th GST Council meeting has laid the groundwork for a more robust and efficient GST regime. Taxpayers must now prepare to navigate this new compliance terrain, ensuring they are well-equipped to meet the demands of the IMS and other council recommendations. The journey towards perfecting GST invoice management continues while keeping the promise of a more transparent and accountable tax system for India.

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CA Kanchan R Umranikar, Director, Ernst & Young LLP, India

CA Pranjali Tendulkar, Senior Consultant, Ernst & Young LLP, India