E-Invoicing: Accelerating Digitisation

• E-invoicing is a system in which Business to Business (B2B) invoices are authenticated electronically by GST Network (GSTN) for further use on the common GST portal.
• A 64-digit identification number called as Invoice Reference Number (IRN) will be issued against every invoice by the Invoice Registration Portal (IRP) managed by the GSTN.
• This IRN serves as a unique number in the GST system, irrespective of tax payer, financial year and document type.
• A B2B invoice generated by a specified person (to whom E-invoicing applies) without an IRN will not be considered valid under GST.
• A Quick Response code (QR code) will also be generated for every invoice reported to IRP, which if scanned with the NIC QR code scanning application, will display details relating to the particular invoice including the IRN.

“Further, as the second phase of implementation of E-invoicing, vide Notification 88/2020 dated 11/11/2020, CBIC further extended the applicability to registered persons having aggregate turnover above ₹100 crores with effect from 01/01/2021.”

Exemptions from Application of E-invoicing

Exemptions have been given to the following entities from application of E-invoicing:

1. Special Economic Zone Units
2. Insurer or a banking company or a financial institution, including a non-banking financial company
3. Goods transport agency supplying services in relation to transportation of goods by road in a goods carriage
4. Suppliers of passenger transportation service
5. Suppliers of services by way of admission to the exhibition of cinematograph films in multiplex screens

Note: It has to be noted that the exemption in a) above is available only to SEZ units and not to SEZ developers.

Documents covered:

Following are the documents on which E-invoicing shall be applied:

• Invoices issued by the Supplier;
• Debit Notes issued by the Supplier;
• Credit Notes issued by the Supplier;
• Any other document as notified under the Act to be reported under e-invoicing.

This means that documents issued under the Act in respect of a taxable supply alone are subject to E-invoicing. Other documents such as bill of supply, delivery challan etc. do not represent taxable supplies and hence are not under the purview. This essentially safeguards the interests of government towards protecting revenue and curbing fake ITC claims.

1. Invoice is generated as per the existing procedure

As discussed earlier, there are no changes in the process of generation of invoice, which can be done as per the existing business process.

2. Details of the invoice are transmitted on to the IRP

This is the first crucial step under the E-invoicing whereby businesses have to establish a connection between their local ERP and the GST IRP. At this step, we can examine in detail, what details must be transmitted and how it can be done.

a) What must be transmitted?

The CBIC has notified the e-invoice schema which is a standard format that contains mandatory and optional fields to be transmitted to the IRP for receiving IRN. Mandatory fields are those that must be compulsorily sent to the IRP without which a successful IRN will not be returned, whereas optional fields may/ may not be transmitted based on the business needs. For better understanding, the overall e-invoice schema which contains more than 200 fields can be broadly classified as under. However, each of the individual fields contain various specifications and validations which must be analysed one-by-one by taxpayers who are in the process of implementation:

1. Basic Invoice details
2. Supplier details
3. Recipient details
4. Item wise details
5. Document level details
6. Other references & additional details

b) How it must be transmitted?

3. IRN and QR code are generated by IRP upon successful validation of the details

Upon validation, either the IRP returns error(s) or successfully validates the data. If errors are received, the taxpayers have to analyse the reasons for the error(s) and rectify and reprocess such documents. After successful validation by the IRP, IRN and QR codes are generated.

4. IRN and QR code are received by the taxpayer

In this step, the taxpayer receives back the IRN and QR code from the IRP. Mode of receipt differs based on the transmission methodology.

5. E-invoice data is automatically transmitted to GST common portal and E-way bill portal

Though the cycle of transmission and validation of invoice details end with the preceding step, the process does not stop there. After the successful generation of IRN, the taxpayer’s invoice data enters into the GST database and is shared with different GST networks such as the common portal, E-way bill portal etc. The purpose of E-invoicing is completed only in this step, which introduces inter-operability of data. Details are auto-populated to GSTR-1 returns and E-way bill portal.

“One of the major benefits of E-invoicing is auto-population of data. The invoice details which are reported to IRP automatically get filled in the GSTR-1 return of the supplier. This simplifies the process of filing the return by avoiding the requirement to upload invoices and thereby also eliminating possibilities of errors.”

Outward supplies:

• Customer confirmation and transport readiness: It might to be essential to ensure confirmation from customer before invoicing owing to the intricacies in the process of invoice cancellation once IRN is generated.
• Equipping the ERP system: Before the taxpayer decides to opt for API integration method, it is very important to understand the impact of the same in their ERP, identifying the extent to which the ERP can support the integration and enhancing the same to cater to the additional needs. This is a point where the respective IT support teams come into picture.
• Additions in the invoice format: QR code generated by IRP must be printed on the face of the invoice. Printing of the 64-digit IRN is optional and is left to the businesses to decide. These additional components in invoice will require consequent changes in the print format in the ERP/ billing software used by the taxpayer.
• Time limit for generation of IRN: IRN has to be generated latest by the day succeeding the date of invoice. That means, for an invoice raised today, IRN has to be generated today or tomorrow. This time limit has to be read keeping in mind Rule 48(5) which says that every invoice issued by a person to whom E-invoicing applies shall not be treated as an invoice if does not satisfy the e-invoice requirements. Therefore, the time limit for validation of an invoice is practically end of the succeeding day of invoice after which the document becomes invalid in the eyes of GST law.
• Invoice Cancellation: One of the significant impacts of E-invoicing on the billing process is the procedure for invoice cancellation. Taxpayers enjoyed practical freedom in raising and cancelling an invoice until they have filed their GSTR-1 for that particular month. However, E-invoicing provisions goes further and places a time limit for cancellation of E-invoice, as 24 hours. This means that an invoice once reported to IRP can be cancelled only within 24 hours from the time of generation of IRN, beyond which the invoice becomes automatically valid and can only be reversed by way of issue of a credit note. This provision ensures discipline in invoicing process and helps avoid unwarranted and delayed cancellations.
• Integration of E-invoice with E-way bill: At the time of implementation of E-invoicing, the option was left to the taxpayer to send details simultaneously to the E-way bill portal along with IRN generation. This helps in autopopulation of the invoice details in the E-way bill portal where the taxpayer can enter the transporter details and generate the E-way bill. However, as per the CBIC notifications, with effect from January 1, 2021 this has been made mandatory for all B2B and export invoices. This integration helps the Government considerably in terms of linking the invoice with E-way bill thereby in better tracking of the movement of taxable goods.
• Auto-population of invoices: As explained earlier, one of the major benefits of E-invoicing is auto-population of data. The invoice details which are reported to IRP automatically get filled in the GSTR-1 return of the supplier. This simplifies the process of filing the return by avoiding the requirement to upload invoices and thereby also eliminating possibilities of errors. From the month of December 2020, this feature has been enabled, through which auto-populated data can be viewed and verified by the taxpayer, and in case of any deviations from the actual invoice details, can be modified/ updated as well.

“E-invoicing can be a major challenge for those businesses having limited access to sophisticated IT infrastructure that the reform calls for. However, in the long run it will bring more transparency and ease of operation for the MSMEs which can improve their credibility as well as operational efficiency.”

Inward supplies:

• Enforcing compliance from vendors: It has to be ensured that the vendors having an annual turnover of more than ₹500 Crores at the PAN level submit invoices with valid IRN and QR code. This is important as the invoices issued without IRN will be invalid and accordingly ITC cannot be claimed on such invoices. Hence it is important to identify the vendors covered under E-invoicing. Currently, a functionality is made available on the IRP for downloading the list of taxpayers following E-invoicing all over the country, which will be of use.
• Amendments in purchase orders: Since E-invoicing is an additional compliance requirement to be taken care by the vendors, a separate clause must be added in purchase orders for enforcing the compliance with E-invoicing regulations.
• Obtaining written declarations: It is advisable to obtain written declarations from vendors regarding applicability of E-invoicing to them and confirmation of compliance, if applicable. This will serve as a basis for the recipients for availing the ITC.
• Validation of IRN and QR code: Since invoice must contain a valid IRN and QR code, verification of the same using the NIC QR code reading application is important. This is a challenging requirement considering the volume of purchase invoices that the taxpayer may be dealing with, on a daily basis.
• Ensuring accuracy in vendor’s E-invoice: E-invoicing adds one more layer to the GSTR-2A reconciliation and further complicates the process. Suppose the vendor reports an invoice against a wrong GSTIN and generates IRN on the same. The invoice will be missing in our GSTR-2A and the same will be reflected only at the time of reconciliation. By that time the time limit for cancellation or amendment of the invoice would have expired and the vendor is left with the only option of issuing a credit note. Hence, close monitoring of the GSTR-2A is furthermore necessitated by the E-invoicing regulations.

• Ensuring the existence of values in all mandatory fields to avoid errors at the time of IRN generation.
• Securing access rights on ERP and IRP for generation and cancellation of documents.
• Daily monitoring of IRNs generated on the previous day by an independent person (preferably person handling GST compliances) could be useful to identify errors if any and enabling cancellation within 24 hours.
• Printing IRN on the invoice even though optional, is being followed by taxpayers as an additional compliance.
• Reconciling the ERP report for outward supplies with the auto-populated details as per the GSP/ GST portal.
• Closely interacting with GSPs and IT personnel to assess the impact and implement changes in the e-invoice schema.