IMS reject action: supplier liability recovery and reconciliation workflow

Monthly GST reconciliation between the 14th and the 20th often brings surprises. A buyer reviewing inward supplies on the GST portal may find an invoice with an incorrect GSTIN, wrong tax rate, or billing for goods never received. In response, the buyer selects Reject in the Invoice Management System. While this protects the buyer from claiming ineligible input tax credit, many businesses assume that rejection cancels the supplier tax liability. That assumption is incorrect and leads to severe financial and working capital imbalances.

Statutory framework: Section 38(2) and Rule 60(7)

The Invoice Management System operates under the legal architecture established by the Central Goods and Services Tax Act and the corresponding rules. Under Section 38(1) and Section 38(2) of the CGST Act, details of outward supplies furnished by suppliers under Section 37(1) are made available electronically to recipients alongside an auto-generated statement of input tax credit. Section 38(2) specifies that this statement identifies supplies on which credit cannot be availed, including supplies where conditions or restrictions are triggered.

Operational rules are codified under Rule 60(7) of the CGST Rules. Rule 60(7) governs the auto-generation of Form GSTR-2B. When a recipient exercises a Reject action on an invoice in IMS, the system excludes that record from the eligible credit tables of Form GSTR-2B. Instead, the rejected record is placed into the ineligible or rejected supplies section. Consequently, the tax amount never flows into Table 4(A)(5) of the recipient Form GSTR-3B.

Detailed technical specifications published in the GSTN IMS Advisory and FAQs dated 17 October 2024 confirm that recipient actions in IMS serve as an interactive filter for input tax credit computation. However, an action taken on the recipient side does not rewrite the supplier filed statement of outward supplies.

Contrasting IMS actions: Accept versus Pending versus Reject

The Invoice Management System provides recipients with three distinct actions for each inward invoice, debit note, or amendment. Choosing the wrong action disrupts monthly working capital and credit availability:

A Pending action defers the credit decision to a future tax period, keeping the document open on the IMS dashboard until the deadline specified under Section 16(4). In contrast, a Reject action informs the supplier that the document is repudiated, requiring corrective commercial and statutory intervention.

Why rejected invoices create supplier liability imbalances

When a supplier files Form GSTR-1 or uses the Invoice Furnishing Facility (IFF) by the 11th or 13th of the month, the outward tax liability is established in system-generated Form GSTR-3B Table 3.1(a). If a buyer subsequently marks that invoice as Rejected on IMS before filing their own Form GSTR-3B on the 20th, a direct mismatch occurs:

• The buyer takes zero input tax credit in their Form GSTR-3B.
• The supplier auto-drafted Form GSTR-3B still reflects the full outward tax liability.
• The supplier cash or credit balance will be debited on the 20th unless statutory correction is executed.

Without formal communication, the supplier may pay tax to the government on an invoice for which the buyer will never remit payment. This drains cash flow and creates unresolved ledger balances between trade partners.

Supplier liability recovery workflow

To recover or adjust outward tax liability following an IMS rejection, suppliers must execute statutory corrections on the GST portal. Depending on filing timelines, two primary mechanisms exist under the GST law:

Option 1: immediate correction via Form GSTR-1A

Introduced under Notification No. 12/2024-Central Tax and detailed in GSTN Form GSTR-1A advisories, Form GSTR-1A provides an optional amendment window. After filing Form GSTR-1 on the 11th, a supplier can file Form GSTR-1A before filing Form GSTR-3B for that same tax period.

1. The supplier navigates to the IMS dashboard and downloads the Outward Supplies action report to view all records rejected by buyers.
2. Access Services → Returns → Form GSTR-1A on the common portal.
3. The supplier can amend the recipient GSTIN if a wrong buyer was billed, modify taxable values, or reduce liability if the supply was erroneous.
4. Filing Form GSTR-1A automatically recalculates the supplier auto-drafted liabilities in Table 3.1 of Form GSTR-3B, preventing unwarranted tax cash outflows.

Option 2: subsequent period amendment under Section 37(3)

If the supplier has already submitted their monthly summary return, Form GSTR-1A is no longer accessible. The supplier must then execute corrections under Section 37(3) of the CGST Act in the next return cycle:

1. If the transaction was cancelled or deficient, the supplier issues a formal credit document under Section 34 and reports it in Table 9B of Form GSTR-1 in the following tax period.
2. If the invoice was uploaded with an incorrect GSTIN or invoice number, the supplier files an amendment in Table 9A of Form GSTR-1 in the subsequent month.
3. The downward adjustment reduces outward liability in Table 3.1 of the subsequent period Form GSTR-3B, effectively recovering the excess tax previously paid.

Worked arithmetic example: ₹1,50,000 mistaken B2B supply

Consider a practical scenario involving an engineering supplier, Apex Precision Tools, and a buyer, Bharat Fabrication Works, during the October 2026 tax period:

• Invoice INV-0842 was issued on 04 October 2026 with taxable value of ₹1,50,000 and IGST at 18% of ₹27,000, bringing total invoice value to ₹1,77,000.
• The order was cancelled by mutual agreement prior to dispatch, but the billing department uploaded INV-0842 in Form GSTR-1 filed on 11 October 2026.
• On 15 October 2026, the accounts team at Bharat Fabrication Works logs into IMS and marks INV-0842 as Rejected because no goods were received.

If Apex Precision Tools had failed to file Form GSTR-1A by 20 October 2026, they would have paid ₹27,000 in cash or utilized credit unnecessarily. Their only recourse would have been declaring a credit adjustment in November 2026 outward supplies.

Standard commercial reconciliation and communication protocol

Accounts payable and receivable departments must maintain clear commercial protocols whenever an invoice is rejected on IMS. Uncoordinated rejections cause commercial friction and ledger discrepancies.

Below is a standardized communication template that accounts teams can adapt when rejecting inward invoices:

Common pitfalls in IMS rejection handling

Taxpayers frequently encounter procedural and compliance hurdles when dealing with rejected invoices:

• Rejecting invoices instead of using Pending for transit delays. When goods are in transit across state borders on the 14th of the month, rejecting the invoice forces the supplier to cancel or re-issue documents. Using Pending preserves the document for acceptance in the subsequent month.
• Failing to recompute GSTR-2B after action changes. If a buyer mistakenly rejects an invoice and subsequently resets or changes the action to Accept, the change does not immediately update GSTR-3B. The buyer must click Recompute GSTR-2B on the returns dashboard.
• Ignoring the supplier Outward IMS report. Supplier tax teams often file Form GSTR-3B based purely on GSTR-1 figures without checking the IMS Outward Supplies action report, missing the opportunity to correct rejected records via GSTR-1A.
• Delayed credit notes crossing statutory deadlines. Under Section 34(2), credit notes for a financial year must be declared no later than the 30th day of November following the end of the financial year, or the date of furnishing the relevant annual return, whichever is earlier. Delayed reconciliation risks permanent loss of tax recovery.

Internal links and related reading

Deepen your understanding of the Invoice Management System and statutory compliance workflows with our related guides:

• IMS reject invoice in GSTR-2B: rules and consequence
• IMS communication to suppliers on rejected invoices: step-by-step SOP
• IMS action on amended invoices: GSTR-1A impact
• IMS recipient acceptance and supplier tax unpaid risk

Frequently asked questions

Last checked: 19 October 2026. Sources: Section 38, CGST Act, Rule 60(7), CGST Rules, Section 37, CGST Act, GSTN IMS Advisory and FAQ (17 October 2024).