Deciphering whether a particular concept is working well under GST law is simple — the Central Board of Indirect Taxes and Customs (CBIC) rolls it out to a larger population of taxpayers in quick time. There are not many concepts that can showcase this as an achievement — e-invoicing can certainly stake a claim to be one of the first.

Commencing with a threshold turnover limit of ₹500 crore (October 2020), it was rolled out to those with a turnover limit of ₹100 crore (January 2021). Vide Circular No 05/2021 of March 8, 2021, it will now be rolled out to those with a turnover exceeding ₹50 crore (April 2021 onwards). It was supposed to be rolled out to all taxpayers, but the CBIC appears to have had second thoughts on this and put in another threshold.

It is also a fact that the menace of fake invoices has forced the CBIC to mandate e-invoicing in double-quick time. Unlike the glitches faced when the concept of e-way bills were first rolled out, e-invoicing appears to be having better acceptability and the glitches in the system are also not many.

Robust system

E-invoicing is an electronic authentication mechanism under GST. Under the mechanism, all B2B and export invoices generated by a business need to be registered with the government system — the Invoice Registration Portal (IRP) — and a unique identification number for every invoice, called Invoice Reference Number (IRN), obtained.

Along with IRN, the IRP will also create a digitally signed QR code with select details from the invoice and digitally sign the uploaded invoice data.

Thus, an e-invoice is a document which has an IRN associated with it and the digitally signed QR code printed on it. Once an IRN is generated and invoice has been authenticated, its details shall be made available on the GST and E-Way Bill portals in real-time.

In a couple of months’ time, all entities to whom e-invoicing is applicable would be comfortable with the system. Both the tax liability on the supply side and the input tax credit (ITC) on the recipients’ side would happen almost in real time. Once the system stabilises, the CBIC should do away with both Rules 36B and 86B in the GST law which artificially restrict ITC.

A significant portion of taxpayers whose turnover is below ₹50 crore would be under the composition scheme so there is no possibility of claiming ITC. The Invoice Furnishing Facility (IFF) that was optional for taxpayers who have transitioned to the Quarterly Return Monthly Payment (QRMP) Scheme should also be done away with since it imposes needless limits like a turnover limit of ₹50 lakh for invoices.

Rule 36(4) restricts ITC in cases where GSTR-1 has not been uploaded by the suppliers under sub-section (1) of Section 37. It is important to note that this newly inserted rule is a substantive condition to be fulfilled for getting ITC in addition to the conditions prescribed under Section 16 of CGST Act, 2017.

Rule 86B limits the use of ITC available in the electronic credit ledger for discharging the output tax liability. This rule has an overriding impact on all the other CGST Rules. Registered taxpayers to whom this is applicable cannot use ITC in excess of 99 per cent of output tax liability — 1 per cent will have to be paid by cash.

There is a view that e-invoicing cannot eliminate fake invoices — the e-invoice itself could be faked by goods not being transferred or services not being rendered.

While this is true, it should not be forgotten that the GST department has lots of data on taxpayer behaviour. It is only a matter of time before the AI/ML tools being used are able to red-flag suspicious transactions. Caveat adsiduus — taxpayer beware.

The writer is a chartered accountant

Related Topics