Handling Old GST Invoice Payments to a supplier: The Complete Compliance Guide for Pending Invoices

How to handle old GST invoice payments for GST registered businesses?

Managing old arrear payments under GST involves complex compliance considerations that can significantly impact both suppliers and recipients. Managing pending payments from previous years can be confusing and raises critical questions about invoice validity, double reporting risks, TDS applicability, and audit implications. This comprehensive guide addresses these concerns with detailed legal provisions and practical solutions for businesses facing similar situations.

Case Study of Missed Payments in Previous Years

A business is planning to clear long-pending arrear payments to a supplier for supplies made during FY 2019, 2020, and 2022. The supplier had already issued invoices and filed the corresponding GSTR-1 and GSTR-3B returns, but the payments were not made at the time.

Current Proposal:

The supplier has suggested issuing a new consolidated invoice for the total outstanding amount to facilitate payment.

Key Compliance Questions Raised:

Question	Details
Legality of Fresh Invoice	Whether issuing a new invoice now for supplies already invoiced and reported in earlier GST returns is permissible under GST law.
Risk of Double Reporting	Whether this approach could lead to duplicate reporting in GST filings and trigger audit or scrutiny issues.
TDS Applicability	Whether Income Tax TDS and GST TDS can be deducted at the time of making this delayed payment, and if so, how to compute and report it.
Best Practice for Arrear Settlement	Seeking guidance on the cleanest and most compliant method to settle such old dues without violating GST norms or attracting penalties.

The Case Analysis: Key Compliance Issues

The presented scenario involves several critical GST and TDS compliance challenges:

• Old invoices already filed in GSTR-1/3B by the supplier
• Supplier suggesting new consolidated invoice for outstanding amounts
• Double reporting concerns and audit risks
• TDS deduction applicability on delayed payments
• Best practices for compliance and audit perspective

Let’s address each concern systematically with applicable legal provisions.

Issue 1: New Invoice vs. Old Invoice Payment

Legal Position: Section 31 of CGST Act 2017

The fundamental question is whether a supplier can issue a fresh invoice for already-supplied goods/services.

According to Section 31 of the CGST Act 2017, a tax invoice must be issued:

"before or at the time of removal of goods or supply of services or both, or at the time when the supplier of goods or services or both receives the payment, whichever is earlier."

Critical Legal Analysis:

• Once goods/services are supplied and invoiced, a fresh invoice cannot be issued for the same supply
• The original invoice remains legally valid regardless of payment timing
• Time of supply has already occurred when original invoice was issued

Recommended Approach: Pay Against Original Invoices

The legally correct approach is to pay against the original invoices, not issue new ones.

Reasons:

• Avoids Section 122 penalty for issuing false/incorrect invoices
• Prevents double reporting in GSTR-1
• Maintains audit trail integrity
• Complies with time of supply provisions

Issue 2: Double Reporting and Audit Risks

Legal Implications of Duplicate Invoicing

Issuing a new invoice for already-reported supplies constitutes a serious GST violation.

Section 122(1)(i) of CGST Act 2017 specifically penalizes:

"supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply"

Section 122(1)(ii) penalizes:

"issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act"

Penalty Implications:

• Minimum penalty: ₹10,000
• Maximum penalty: Tax amount involved
• Double jeopardy: Both clauses (i) and (ii) may apply

Audit and Compliance Risks

Creating new invoices for old supplies creates multiple compliance risks:

• GSTR-1 Mismatch: Original supplies already reported, new invoice creates duplication
• ITC Irregularities: Recipient's ITC claims may be questioned
• Revenue Audit: Tax authorities may view this as tax evasion attempt
• Section 73/74 Proceedings: May trigger demand proceedings for alleged tax evasion

Issue 3: TDS Deduction on Late Payments

Section 51 of CGST Act: TDS Provisions

TDS under GST is governed by Section 51 of CGST Act 2017.

Key Provisions:

• Applicability: Specified entities making contracts above ₹2.5 lakh
• Rate: 2% (1% CGST + 1% SGST) or 2% IGST
• Timing: At the time of payment

TDS on Delayed Payments: Legal Position

Critical Question: Can TDS be deducted on payments for old invoices?

Legal Analysis:

• Time of TDS Deduction: Section 51(2) requires TDS deposit within 10 days of month-end when payment is made
• No Time Bar: GST law doesn't restrict TDS deduction based on invoice age
• Contract Value: Original contract value determines TDS applicability

Answer: YES, TDS can and should be deducted if:

• You are a specified person under Section 51
• Original contract value exceeded ₹2.5 lakh
• Payment is being made now (timing of actual payment matters)

TDS Certificate and Compliance

Section 51(3) and (4) Requirements:

• TDS certificate must be issued within 5 days of depositing TDS
• Late fee: ₹100 per day (max ₹5,000) under each Act for delayed certificate
• Form GSTR-7 filing required by 10th of following month

Issue 4: Income Tax TDS Considerations

Section 194C/194J of Income Tax Act

Parallel to GST TDS, Income Tax TDS may also apply on payments.

Applicability:

• Contractor payments: Section 194C (2% TDS)
• Professional services: Section 194J (10% TDS)
• No time limitation for TDS deduction on actual payment

Important: Both GST TDS and Income Tax TDS can apply simultaneously on the same payment.

Rule 37: The 180-Day Payment Rule Impact

Critical Compliance Concern: ITC Reversal

Rule 37 of CGST Rules 2017 creates significant implications for delayed payments.

Key Provisions:

• 180-day limit: If payment not made within 180 days from invoice date, ITC must be reversed
• Full payment requirement: Partial payments don't prevent ITC reversal
• Interest liability: 18% interest on reversed ITC amount

What Would Be the Practical Approach and the Actions Required Based on the Case?

For FY 2019, 2020, 2022 Invoices:

• ITC already reversed: If 180 days have passed, ITC should have been reversed
• Interest paid: Interest should have been paid on reversed amount
• ITC reclaim: Upon payment, ITC can be reclaimed in current period

Action Required:

• Verify if ITC was properly reversed for unpaid invoices
• Calculate and pay interest if not already done
• Reclaim ITC after making payments

Best Practices for Compliance: How to Go About Making the Delayed Payment

Step 1: Verify Original Invoice Details

• Collect original invoice copies from FY 2019, 2020, 2022
• Verify GSTIN, amounts, and tax details
• Confirm supplier has filed these in respective GSTR-1 returns

Step 2: Payment Process

• Make payments against original invoice numbers
• Do NOT accept new consolidated invoices
• Maintain clear payment advice referencing original invoices

Step 3: TDS Compliance

• Deduct GST TDS (2%) if applicable under Section 51
• Deduct Income Tax TDS as per applicable sections
• Deposit TDS within prescribed timelines
• Issue TDS certificates within 5 days

Step 4: Accounting and Reporting

• Record payments against original invoices in books
• Reverse ITC reversal entries (if applicable under Rule 37)
• File revised returns if necessary for ITC reclaim

Documentation Requirements

Essential Documents:

• Original invoices from supplier
• Payment advices clearly referencing original invoice numbers
• TDS certificates (both GST and Income Tax)
• Bank statements showing actual payments
• GSTR-2A entries for ITC reclaim verification

Amendment and Rectification Options

GSTR-1 Amendment Limitations

Important Time Limits:

• Amendment deadline: 30th November of following financial year
• For FY 2019-20: Amendment deadline was 30th November 2020 (expired)
• For FY 2021-22: Amendment deadline was 30th November 2022 (expired)

Conclusion: Original invoices cannot be amended now, reinforcing the position that new invoices cannot be issued.

Credit Note Option (Not Recommended Here)

While credit notes can cancel invoices, this is not appropriate for your case because:

• Goods/services were actually received
• Payment is being made (not cancelling transaction)
• Credit note followed by new invoice creates same double-reporting issue

Penalty Avoidance Strategy

Section 122 Penalty Mitigation

To avoid penalties under Section 122:

• Avoid new invoices for old supplies
• Pay against original invoices with clear references
• Maintain proper documentation of payment reasons
• Ensure TDS compliance to avoid additional penalties

Section 73/74 Protection

Proper payment against original invoices provides protection against:

• Tax demand proceedings under Sections 73/74
• Questions about tax evasion or avoidance
• Input tax credit irregularities

Summary of Actions Recommended for the Recipient and Supplier in the Above Case

For the Supplier

Do’s:

• Maintain original invoice records
• Issue proper TDS certificates promptly
• Update books to reflect payment receipt
• Ensure GSTR-1 filings were correct for original periods

Don’ts:

• Issue fresh consolidated invoices
• Modify original invoice details
• Create any document that suggests new supply

For the Recipient

Immediate Actions:

• Communicate with supplier about paying against original invoices only
• Calculate TDS obligations for all pending payments
• Verify ITC reversal compliance under Rule 37
• Prepare payment schedule with proper invoice references

Payment Process:

• Make payments with clear reference to original invoice numbers
• Deduct applicable TDS (GST and Income Tax)
• Obtain proper TDS certificates
• Update accounting records appropriately

Risk Assessment and Mitigation

High-Risk Scenarios to Avoid

• Accepting consolidated invoices - Creates Section 122 penalty risk
• Ignoring TDS requirements - Leads to interest and penalty
• Improper ITC handling - May trigger audit and demands
• Poor documentation - Increases audit complications

Low-Risk Compliance Approach

• Pay against original invoices with proper references
• Complete TDS compliance as per current law
• Maintain comprehensive documentation
• Professional consultation for complex situations

Official Resources and Legal

Key Legal Provisions

• Section 31 CGST Act: Time of supply and invoice requirements
• Section 51 CGST Act: TDS provisions and procedures
• Section 122 CGST Act: Penalties for various violations
• Rule 37 CGST Rules: Payment timeline and ITC reversal

Government Portals

• GST Portal: https://www.gst.gov.in (for TDS returns and certificates)
• E-Invoice Portal: https://einvoice1.gst.gov.in (for invoice verification)
• CBIC Website: https://cbic-gst.gov.in (for latest circulars and FAQs)

Conclusion and Recommendations

The cleanest and most compliant approach is to pay against original invoices while ensuring proper TDS compliance.

Key Recommendations:

• Reject supplier’s consolidated invoice suggestion - It creates legal and compliance risks
• Pay against original invoices from respective financial years with clear references
• Deduct applicable TDS (GST and Income Tax) as per current law
• Maintain comprehensive documentation for audit protection
• Verify and correct ITC positions if Rule 37 violations exist
• Engage professional consultation for complex situations

Risk Mitigation Summary:

• Legal compliance: Paying against original invoices ensures no violation of GST laws
• Audit protection: Proper documentation and TDS compliance provides audit defense
• Penalty avoidance: Avoiding new invoices prevents Section 122 penalties
• ITC optimization: Proper Rule 37 compliance allows legitimate ITC claims

Final Advice: While paying old arrears involves complex compliance considerations, following the original invoice payment method with proper TDS compliance provides the safest legal path. The key is maintaining transparency, proper documentation, and ensuring all current legal requirements are met during the payment process.

This approach protects both parties from legal challenges while ensuring full compliance with GST and Income Tax provisions, making it the recommended solution for businesses facing similar arrear payment situations.