E-Invoicing Under GST – How Would It Work?

Voluntary compliance with e-invoicing will help eradicate all anomalies before it becomes a mandatory requirement.

E-Invoicing Under GST – How Would It Work?

The Goods and Services Tax has indeed been one of the most radical tax reforms in India. Not only has the regime been instrumental in making One Nation, One Tax a reality but it has also ushered a new era of the indirect tax regime which is digital and technology-driven. Currently, companies across industries use technology-enabled solutions for undertaking GST compliance online on the GST Network.

The first two years of this technology journey involved a lot of teething issues for both industry and the government, but the government and GSTN have been agile enough to make necessary changes to reduce the difficulties faced by industry. This involved changes in the systems, processes, as well as the GST law to accommodate industry requirements.

To push for a digital economy and as a deterrent to tax evasion, in this year’s Union Budget, the government made a major announcement, introducing an e-invoicing system from January 2020. Initially, the government intends to keep it voluntary for the businesses to opt for e-invoicing. Following this announcement, recently GSTN has also released a consultation paper on e-Invoice standard—drafted in partnership with ICAI—for industry feedback.

This standard is based on globally-accepted standards, which are being used in various European countries.

Through this, the government intends to standardise the invoice formats across industries which would provide an opportunity to automate the reading and booking of such invoices across different accounting software.

The Mechanics Of E-Invoicing

From the initial discussions and consultation paper, the proposed e-invoicing system could require the suppliers to generate a unique identification number—also referred to as Invoice Reference Number—for each of its invoices. GSTN would provide multiple mechanisms to generate the said IRN.

Once the IRN is generated, the details of the invoice and the IRN would need to be provided to a pre-notified agency, such as NIC, on a real-time basis. The agency would validate the IRN and issue a digitally signed e-invoice and provide the same to the supplier. It is for this e-invoice that the consultation paper has been released. Such an authorised agency would also pass on the invoice details to GSTN/NIC for auto-population of returns/e-way bill (Part A). The invoice details would also be visible to the buyer on a real-time basis (on GSTN) and would hence, ensure instant verification.

Only invoices with an IRN are expected to be considered as a valid tax invoice for GST purposes.

From the process, the e-invoicing system appears to be an extension of the existing e-way bill system implemented for the movement of goods.

It is expected that the e-invoicing system would be implemented in a phased manner similar to how e-way bill was implemented last year. This could include only sellers or invoices above a particular threshold need to comply, some of the sectors may also be kept outside the purview of this initially. Over time, it is expected that the e-invoice requirement would be there for all B2B transactions and could even be extended to B2C.

Further, there have been doubts about whether both e-way bill and e-invoicing would continue simultaneously. Based on the current set of information asked for in e-invoicing, it appears that this would be the case.

Once the e-invoicing system stabilises, and covers all transactions, the government may think of doing away with e-way bill but that may not happen in the immediate future.
Two Years Of GST: How E-Way Bills Have Curbed Tax Evasion

Way Forward for Industry And Government

As an immediate action, it is important for industry to examine the consultation paper released by GSTN along with draft e-invoice schema/format.

The e-invoice schema/format offers the various kinds of information which would be populated on the e-invoice to be issued by the agency. It also highlights which of this information would be mandatory/optional for businesses to provide. There are quite a few optional fields provided, to cater to different industry requirements.

A review of the schema shows that there are a few fields which are, otherwise, mandatory requirements for GST compliance, but have been kept optional (such as HSN code) and vice-versa.

It is critical that industry studies each of the business scenarios and maps them against e-invoicing requirements carefully to see whether the information required are currently available in their ERPs / accounting software or would entail system changes.

Any change in ERP or IT systems to fetch new information can be quite time-consuming, which has been the experience during GST implementation for companies across industries.

Further, any unique industry requirement from an invoice format perspective should also be assessed so that there is a field in the invoice issued by the agency to capture the same. Some finer aspects should also be checked such as the maximum number of characters allowed in a particular field or whether there is a restriction on the number of line items which can be captured as part of e-invoice.

Additionally, there are quite a few business scenarios which are still ambiguous, such as:

  • Whether there will be two invoices, one generated from the ERP and second issued by the agency. If yes, which invoice would be the valid invoice for availing credit/ for movement of the goods?
  • In case an invoice has been digitally signed by the agency, would there be a need to still sign the invoice by the seller? Will the need to have a digital signature from the seller be done away with?
  • Is it okay if instead of carrying the complete invoice, the seller only prints the IRN and ships the goods?
  • How would the cancellation of an invoice or amendment to an invoice be handled under the new e-invoice regime?
  • What would happen in case internet connectivity is down but the transaction has to be processed? Would an alternative be provided?

There are likely to be many more scenarios for which one doesn’t have clear answers today.

It would be prudent on the part of industry to file timely representations before the government to list out such issues and business scenarios which require more clarity, and have timely discussions with the government for possible solutions. As of now, GSTN has given time till Aug. 20, 2019, to provide feedback on the consultation paper.

Even though the government would provide a manual option to comply with e-invoicing, all large enterprises should evaluate/implement technology solutions to ensure timely compliance without business disruption.

From the government’s perspective, it should first consider extending the time for feedback on the current paper, as industry would need to evaluate it in greater detail.

It is imperative that the government publishes a detailed mechanism on how the e-invoicing system would work. This should also capture various scenarios and how the same would be dealt with in the proposed system.

From an IT system standpoint, all necessary steps should be undertaken to ensure that the information is available with the taxpayers on a real-time basis so that there is no business disruption. Starting with voluntary compliance helps eradicate all anomalies before it becomes a mandatory requirement. The government should indicate how taxpayers can continue with business as usual even if there is any challenge in the IT system.

The success of the e-invoicing system would depend on collaborative efforts between government, GSTN, and industry. Industry needs to be proactive in providing inputs to the government to avoid any big surprises at the time of implementation. The government would, on its part, need to be flexible/agile to incorporate all key industry requirements.

E-invoicing presents an opportunity to all stakeholders to actually make the economy digital and transparent with no need for a paper invoice in the future. The onus is on all stakeholders to make it a reality.

Prashanth Agarwal is Partner - Indirect Tax, at PwC. He was assisted by Nandita Nawalakha, Associate Director at PwC.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.