We are currently under a pandemic situation where the whole process of our working has changed. We are not aware of how long this kind of situation will prevail or when it would be back to normal. Now we are having e- classes in place of physical classes, e-conference instead of physical meeting we have adapted to these changes. There is widespread fear amongst the people in even reading physical new paper thinking that they may act as fomites and hence there is a die-hard need of the Digital Documents rather than the physical documents. We have tried to identify which documents can you can issue and preserve online and their legal validity.
What is an electronic record?
As per section 4 for Information Technology Act, 2000 (hereinafter to be referred IT Act) electronic records means,
“Where any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is—
rendered or made available in an electronic form; and
accessible so as to be usable for a subsequent reference.”
Hence, all the records that can be maintained physically can be managed electronically as per the Information technology act. As per the act even the scanned documents would be considered to be valid.
What is a digital signature and electronic signature?
In the normal course of business, we apply our signature to various documents, there is now an effective substitute for physical signatures two main varieties available are electronic signature and digital signature. Let us discuss the validity of the same.
I T Act, 2000 under section 3 specifies that the documents can be authenticated by way of the use of a hash algorithm under which the existing record would transform into another electronic record. This hash function is being used in such a manner that if any changes are made to the document, it will not show the same hash result, in the simple words it would show as an invalid signature. This is one of the most potent methods under which a digital signature is applied and cannot be repudiated as it has the physical token also linked with it.
There is also a new version of signature is being introduced by the IT Act called electronic signature wherein electronic signature should contain the following features
a. The signature creation data or authentication data are, within the context they are used, linked to the signatory, or as the case may be, the authenticator and to no other person;
b. The signature creation data or authentication data were, at the time of signing, under the control of the signatory or, as the case may be, the authenticator and to no other person;
c. Any alteration to the electronic signature made after affixing such signature is detectable.
d. Any alteration to the information made after its authentication by electronic signature is detectable.
e. It fulfils other prescribed conditions.
Hence, an electronic signature can be termed as a lower version of a digital signature.
It would also be interesting to note that a digital signature is considered as more reliable tools as they are also dependent on a hardware token. Both the digital signature and e-signature are considered as good as physical signature as per the Information Technology Act.
Can GST Records be digitalized?
As far as GST is concerned the, it had already marked the beginning of the digital era it concept was to have all the communications on the digital platform to minimize the physical interaction of department with the taxpayers.
As per the rule 26 of the Central Goods and Service Tax Rules that deals with the mode of authentication of all applications, including reply, if any, to the notices, returns including the details of outward and inward supplies, appeals or any other document required to be submitted under the provisions of these rules are to be submitted electronically and by the use of electronic signature or digital signature. Hence, any correspondence with the department can be done easily electronically.
It further also specifies that each document, including returns that are to be filed, are to be filed are to be submitted electronically and are to be authenticated by the use of EVC or Digital Signature.
Hence, all the communication with the department is required to be done electronically.
As per the rule, 46 dealing with the tax invoice under the CGST rules tax invoices is required to be authenticated by way of signature or digital signature. It would be worth to note that the invoices can also be issued electronically in conformity of the provisions under the Information Technology Act. Further various other rules such as 49 dealing with Bill of supply, Rule 51 dealing with refund voucher, Rule 52 payment voucher, Rule 50 Receipt voucher can be issued by the use of digital signature, and hence they can be wholly issued under paperless format to the buyers of the goods.
As per the rule, 56 of Central Goods and Service Tax Rules a registered person can maintain documents envisaged in section 35(1) of the Central Goods and Services Act and other documents as required under the rule electronically and same can be authenticated by way of digital signature.
Section 35(1) envisages that every registered person should maintain an account for following
a) Records for production or manufacture of goods
b) Records for the inward and outward supply of goods or services or both
c) Stock Register
d) Account for input tax credit availed;
e) Account for output tax payable and paid
Further Rule 56 of Central Goods and Services Tax Rules prescribes to maintain the following records
a) Accounts and records for goods exported and imported
b) Records of supplies attracting tax under reverse charge along with the relevant documents such as invoices, bill of supply, delivery challans, etc.
c) Account of Advance received and adjustments thereon.
d) Records for goods that are being destroyed by why of fire or given by the way of free samples or gift.
e) Tax Invoice, Delivery Challan, Credit note, Debit Notes etc. along with the register required to be maintained.
f) Register having name and address of suppliers from whom the goods are being received.
g) Register having name and address of buyers to whom the goods and service are being given.
h) List of places where goods are stored
This is a huge list of documents that are required to be maintained and same can be maintained electronically.
Advantages and Implementation
1. As per all the major acts, we can retain the documents electronically. As per the Section 36 of CGST Act such documents are to be retained for 72 months from the date of expiry of the due date of furnishing the annual return. Electronic records can save a lot of space in our premises and also there would not be a requirement of any maintenance for the same. We many times find a situation of flood or any other natural calamity where the documents get destroyed. If they are maintained electronically, there would not be an issue.
2. At our premises, we can ensure to issue the invoices digitally, and that can help us for quick delivery of invoices with the help of the delivery by mail or any social messaging app. Such kind of delivery of the invoices shall be in touch and would not add up risk spreading of the coronavirus. Moreover, this invoice can be stored electronically by the recipient for years.
3. With the development of the electronic invoice and payment features now technically we can use many payment gateways which would deliver the invoice online by e-mail and SMS (containing link) and would also collect the payment with the help of the same link. Hence, the problem of dealing with cash can also be sorted out.
4. When the invoices are being issued electronically, it also creates an audit trail and proof of the delivery of invoice. It becomes useful when there is litigation.
5. As per rule 56, there is a condition that any records should not be overwritten or effaced when the records are electronically maintained there is no possibility of the same due to hash code. In case even if they are modified the hash key would not remain the same and it would show that the record are being tampered with as invalid signature.
6. There would be surety of the originator the documents unlike physical documents where we cannot ascertain who has initiated the document or where the signatures are forged there is not possibility of the same under digital signatures.
7. It also brings an audit trail regarding the fact when the documents were signed and hence leaving no room for back dated signatures. Further lot of office space gets saved as all the documents can be stored on a small hard-drive rather huge compartments.
8. There is still a limitation that is present in documents that are received by our office physical such as invoices, debit notes, credit notes, etc. We would see that such kind of documents would be physically signed. As per the CGST Act we need to have an original invoice for the purpose of the claiming the credit and we need to produce the same at the time of audit or investigation by the department. We can preserve scan of such documents however it would be question whether such scanned copy of original invoice would be accepted by the department or not. Even under the Income Tax Act at many times we need to produce book of accounts and they may seek to verify certain invoices in original then in that case these scan invoice would not solve the purpose. In order to have effective solution we also need to implement the policy of demanding the purchase invoices and other relevant documents electronically authenticated by the means of electronic signature. This change would be required at your business policy level.
9. There are many add-ons in ERP that are supporting saving of the invoices at the entry level. So, with the help of this add-ons job of verifying the bill are very easy. Moreover, it brings symmetry regarding the fact that physical documents match with the accounting software thus leave less chances of error. It also makes the job of the auditor easy as they can now directly vouch the documents along with the entry in the accounting software which means that they do not have any need for physical verification.
Hence, in nutshell there is perfect time for all of us to implement the strategy of Digitized Records whether it is SME or established corporate house. So that we survive not only this pandemic but any other pandemic in future.
(Views expressed in this article are strictly personal)