As you all are well aware that a new system of invoicing has been notified in the GST law which is known as “e-invoicing”. The said new system of invoicing would hugely impact compliance mechanism of the assesses registered in the GST law. The said system is being implemented in the phased manner. Since, the e-invoicing system would hugely impact the day to day working of the GST assessees, hence, there are numerous queries/ confusions in the mind of assessee regarding the manner of compliance of this new system. For elaborating on the new invoicing system and for discussing the various issues that might arise we would share various articles on e-invoicing. In this first article we have discussed the concept of e-invoicing and its critical analysis.

E-Invoicing: mechanism

Since, e-invoice has not been defined in the CGST Act, many people has mis-understood the whole concept of e-invoicing and it is believed by many that e-invoicing is generation/ preparation of the invoice electronically on an online portal. However, the same is not correct, e-invoicing means a system whereby the invoice is prepared by including such particulars as are contained in FORM GST INV-01 and after obtaining an Invoice Reference Number (hereinafter referred to as “IRN”) by uploading information contained therein on the Common Goods and Services Tax Electronic Portal (hereinafter referred to as “IRP”). Thus, essentially in the e-invoicing system the invoice is generated in the same manner as was normally being issued by assesses and thereafter the same is validated on common IRP portal wherein a QR code containing the unique IRN along with some important parameters of invoice and digital signature is generated so that it can be verified by an Offline App.

Further, before discussing the concept of e-invoicing in more detail we shall refer to the minutes of the various GST council meeting where the agenda regarding introduction and implementation of e-invoicing was discussed in detail. Agenda item 9 of the 35th meeting of the GST Council dated 21.06.2019 pertains to introduction of Electronic Invoicing System.  In the minutes of the said GST council meeting the advantages and salient features of the e-invoicing are summarised as:

1. The e-invoicing can accelerate the business process automation, reduce compliance burden and improve ease of doing business. Moreover, the immediate capture of the details of the transaction helps in easing the compliance burden, by facilitating auto drafting of returns.

2. For taxpayers, backward integration and automation of tax relevant processes replaces manual and periodic reporting of forms, separate GST declarations, separate tax accounting etc., Thus, tax collection and refund can be done seamlessly and it also results in early settlement of payable and receivables. It also reduces the need for post audit systems of invoice matching drastically, as it ensures in real-time that fiscal documents are tax compliant.

3. In the meetings of Committee of Officers constituted for deliberating on the idea of e-invoicing concluded that the e-invoice on voluntary basis for large taxpayers in B2B segment was worth considering and it needed to be explored positively.

4. NIC had demonstrated a prototype for reporting of e-invoice that would have backward integration with e-way bill and was further working on it.

5. The Committee of Officers has recommended the proposal of introducing e-invoices on a voluntary and optional basis for business to business (B2B) supplies with some caveat and accordingly sub-committees of officers have been constituted to work out the technical parameters and legal and policy framework for-invoicing.

Further, the said agenda 9 i.e. introduction of electronic invoicing system was approved by the council in principle, so as to launch a pilot project on voluntary basis for online generation of B2B e-invoices from January 2020.

Furthermore, the agenda item 13 of the 37th meeting of the GST Council dated 20th September 2019 pertains to Status and progress in generation of e-invoicing. In the minutes of the said meeting in respect of agenda 13 it was stated that GST Council has decided to introduce electronic invoicing system in a phased manner for B2B transactions. In the said minutes it was also stated that a Technical Sub-Group was constituted to look into tech aspects of e-invoice, which mentioned that the e-invoice will be generated through GST portal. The following recommendations were made by the technical sub-group:

1. The standard of template of e-invoice based on industry consultation.

2. Format of Unique Invoice Reference Number (IRN) that will be. based on the computation of hash of GSTIN of generator of document (invoice or credit note etc.), Year and Document number.

3. Creation of multiple registrars to which e-invoice could be reported by taxpayers to obtain Unique Invoice Reference Number to ensure 24X7 operations without any break. NIC will be the first registrar.

4. Digital Signing of e-invoice by registration portal.

5. Generation of QR Code by the e-invoice Registration Portal (IRP) containing the IRN (hash) along with some important parameters of invoice like GSTIN of seller and buyer, invoice number and date, taxable amount, total tax and HSN Code of major item, to help validation of registered e-invoice in offline mode.

6. Multiple modes for getting invoice registered on IRP like Web, API, SMS, mobile app, offline tool, GSP.

7. Direct printing from JSON to enable small taxpayers to directly print from a mobile app to a compatible printer.

Further, a presentation on e-invoicing was made by the CEO of the GSTN and the same was attached in the minutes of the 37th meeting of the GST Council. From the said presentation it appears that the e-invoicing is aimed to provide the following benefits to the trade and government respectively:

ADVANTAGES TO TRADE ADVANTAGES TO GOV.
1. Automation of tax relevant process

2. Backward integration with e-way bill, return, refund etc.

3. Reduces compliance Cost by taxpayers

4. No hard copies of invoices

5. Assured Input Tax Credits

6. Early settlement of accounts

7. Simplified Compliance verification

8. Becomes part of business process

1. Auto matching of lTC claims

2. Reduce fraud such as

i. Carousel fraud

ii. Phantom companies

iii. Suppression of turnover

iv. Clandestine supplies

3. Simplified Compliance verification

4. Better Tax management

5. Better HR usage

6. Providing tax reliefs and spurring the economic activities

Thus, one of the main advantages that is sought to be achieved by introducing e-invoicing system is fraud reduction and identification.

The government is trying hard by introducing different systems and legislatures to curb the frauds and to strictly grant the ITC to the business. Here in view of the author, the Government rather than just focusing on the fraud detection and control should focus its attention and efforts for making a business-friendly environment for the genuine business so that the businessman who are sincerely engaged in doing trade and commerce feels secure and are able to flourish. Here, it is also important to note that the GST was introduced with the objective of easing the whole ecosystem to do business and also that the credit chain is not broken and ultimately to remove the cascading effect of taxes but time and again the policies introduced by way of rules or notifications suggests that taking credit of the taxes paid at the input stage is only made difficult and cumbersome. An impression is being given that allowing businesses to take and utilise credit is a very big facility/an advantage that is made available and thus the same is being controlled to all the extent possible. It is important to understand that in any economy 99% of the businesses are not functioning or operating to commit a fraud but are sincerely thriving to succeed. Thus, rather than making policies just to control and penalise the fraudsters, the government should strive to create an environment that is business friendly and provides a sustainable ecosystem to the trade at large. Frequently changing/ amending the whole systems creates fear in the minds of business and they lose their trust on the government and tend to look for alternatives. The Government should frame the policies that are consistently followed and are user friendly. The countries that are consistent in their policies and legislations are a favourable destination for even the foreign investors as they feel secure investing in those countries. Instead of devoting the whole energy, in controlling and identifying the frauds, by bringing frequent changes in the legislation/ compliances, The Government should make the tax administration efficient and effective.

Further, the e-invoicing system is also sought to be introduced with the objective of auto matching of ITC Claims but, at this juncture, it is hard to say that how much effective e-invoicing would be proved for meeting this objective. Presently also the assesses are allowed ITC on the basis of the outward supply declared by their suppliers in their return filed in the form GSTR -1. Thus, it seems that by effecting this new invoicing system nothing would really change in respect of matching of ITC claims as the same is also being done presently. Further, it is unjustified and unfair on the part of government to load the assesses with the burden of so many compliances merely for their apprehensions regarding the frauds and errors. The Government should learn to trust the business community and should not always look upon them with the suspicion of fraud or dishonesty. As of now the author cannot see any major benefit that would be brought with the introduction of the e-invoicing system. Further, since the said system has already been introduced by the government the same should be continued consistently and should not be changed frequently as they are currently doing with system of return filing. As on today it is already more that 3 years from the introduction of GST and the government, by no means can claim an excuse that the GST is in its initial phases and thus they are not clear as to how the provisions of GST should be implemented. When the government expects that the businesses should follow the provisions of GST just like a pro or an expert the government should also behave in a such like manner and should not make so frequent amendment in the basics of the GST just to suit their whims and fancies.

Here it is also important to see that even after applying the requirement of e-invoicing the recipients of supplies are not allowed to take the ITC merely on the basis of the e-invoice issued by the supplier and the recipient needs to confirm that whether the supplier has deposited the tax with the government of not. Thus, it seems that the registered persons, in reality, are not getting any benefits from the e-invoicing compliances.

In sum

To conclude, the author just wants to highlight to the Government and the administration making the rules, issuing notification, that for the interest of business and economy as whole the, provisions should be made business friendly and easy in compliance. The provisions should not be made at the pretext that all the people doing business have fraudulent intentions just to evade tax. It needs to be understood that it is the responsibility of the government and tax administration to provide a healthy environment so that more and more people, including the foreign investors, are encouraged to invest in the economy which would ultimately help in the jobs creation and wealth creation at large.

*****

The article has been co-authored by Adv. Puneet Agrawal (Partner at ALA Legal Advocates and Solicitors) & C.A. Shuchi Agrawal (Senior Manager at ALA Legal Advocates and Solicitors)

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