While there has been much discussion around issuing E-invoices and the regulatory requirements, the other side of the story remains largely undebated – The impact of E-invoicing from the purchaser’s point of view.
Every invoice impacts two parties – the buyer and the seller. Mainly, the responsibility of raising appropriate invoices rests on the seller or the supplier. However, the schema of GST is such that the buyer’s or the recipient’s input tax credit depends upon the correctness of the invoice issued. The importance of the right/ correct invoice can be understood from the recent turn of events where the CBIC has arrested around 187 people on charges of fake invoice rackets and initiated action against 7000 entities, so far. Hence, it will be unfitting to say that invoices or E-invoices are only the responsibility of the seller. Moreover, the Government took the crackdown of fake invoices to another level when a list of vendors issuing fake invoices and vendors claiming ineligible ITC was shared unofficially. As per the list approx. 3200 vendors were listed for issuing fake invoices and a whopping 9757 vendors were listed for availing fake ITC. This document was dated July 2020 and the numbers have only increased.
The backward integration approach focuses on the recipient of invoices to integrate their systems with that of suppliers to extract E-invoice details, followed by the creation of draft purchase entries and recording of the same. Thus, it is not only the supplier who can use technology to generate E-invoicing smoothly, the recipient may also derive value from such technology.
Key Steps To Be Undertaken By The Recipient
- Identify if suppliers are required to raise E-invoices: E-invoicing has been launched in two phases – firstly, for businesses with turnover more than INR 500 crores w.e.f. 1 October 2020, and secondly, for businesses with turnover exceeding INR 100 crores w.e.f. 1 January 2021. A recipient needs to identify if the vendors from whom goods are being procured fall under any of the above categories. If yes, then the recipient needs to ensure that the invoice received by him has IRN and is generated from the Invoice Registration Portal (IRP). The list of GSTIN generating IRN is available on the NIC portal.
- Ensure that the invoices received are complete in all respects: To claim the uninterrupted input tax credit, it will be the recipient’s responsibility to ensure that the E-invoice passes through all validations prescribed in this regard.
- Record purchase entries: This is a fundamental step that may undergo a change in its entirety. With most of the invoices being standardised, the recipients may automate this step. Moreover, with machine-readable invoices in place, the system can easily pick up relevant information and entries can be recorded in the accounting system.
Impact Of Backward Integration Approach
As discussed above, the backward integration approach can lead to the following in purchase cycles:
- System integration and automation: With the help of a backward integration approach, a recipient could easily extract data from supplier’s ERP, match it with with the purchase orders issued, record purchase entries in the system, make early payments to suppliers, and avail early-payment discounts, if any, release payments to suppliers, lower the risk of human errors and frauds. Moreover, automation shall lead to the setting up of efficient processes in place. Further, an instruction can be given to the P2P system to stop payment in case E-invoices are not received from the eligible vendors. For this, the eligible vendor’s GSTIN can be fed into the system.
- Simplify GST compliances: The GSTN has already indicated that with the help of E-invoices, GST returns shall be auto-populated and taxpayers would have to merely confirm the data before filing the returns. Eventually, the Government may also auto-populate the ITC in GSTR 3B of the recipient. Therefore, the recipients would just have to confirm the data on the portal for ITC computation.
- Resolve the reconciliation challenges: With the advent of GST, the reconciliation woes have troubled the taxpayers. However, once the invoices are standardised and are issued in machine-readable form, reconciliation would become simpler. The system can directly pick up the relevant fields from the invoice and reconcile the same with the ITC as per books and ITC reflected in GSTR 2A/ GSTR 2B.
- Segregation between suppliers eligible for E-invoice and not eligible for E-invoice may have to be done: While the above points would be applicable for all purchases made from vendors raising E-invoices, there would be a decent population of vendors who are not eligible to raise E-invoices. Moreover, even after phase III kicks off, not all vendors would be covered under the E-invoice mandate. Hence segregation would have to be kept between E-invoice vendors and others. Accordingly, invoices can be processed. This shall lead to a situation where the same recipient would have to keep different standard operating procedures for invoices received from different vendors.
- Archival of E-invoices: E-invoices shall become a part of permanent records of an enterprise. Moreover, the retrieval of the same can be done in seconds leading to time and cost savings.
Way Forward
Time and again Cygnet has emphasised the benefits and advantages of E-invoicing. E-invoicing as a reform shall change the way things take place. Not only the suppliers but the Government and the recipients shall also stand benefitted from it. Furthermore, consideration needs to be given to the fact that the penalty for non-issuance of the invoice is 100% of the tax due or Rs.10,000, whichever is higher and the penalty for incorrect invoicing is Rs.25,000. Thus, the GST law is stringent with regard to correct and timely invoicing.
Recently, the provisions like Rule 86A of CGST Rules, 2017 have made the recipient also responsible in case of receipt of fake invoices. ITC denial and ITC blocking are just the tips of the iceberg. The repercussions of dealing with a supplier who has issued fake invoices are impacting the recipient as well. There are multiple cases across the country where the recipient has also been held guilty of availing fake ITC. Thus, it is not only the supplier but the recipient also who needs to be wary of the appropriate invoicing.
Needless to say, the age-old manual practices of the accounts payable department would soon get replaced by digitisation. Hard copies of invoices, large spreadsheets to keep records, signing of cheques and approvals, accounting entries, searching for old paper invoices are all going to become a thing of the past. More often than not, human errors prove to be expensive and create bottlenecks in the smooth processing of invoices. This leads to incorrect payments being made, delayed payments, penalties, loss of early payment discounts, etc.
With such enormous roadblocks, the accounts payable department is set to undergo a facelift. E-invoicing shall become the driver of such makeover for organisations who haven’t already done so voluntarily.
Komal Vithalani
Content Writer
Komal Vithalani, a Chartered Accountant and Commerce graduate, is a dedicated professional committed to delivering value with years of expertise in navigating the complexities of indirect tax laws. Her practical excellence includes managing perplexed litigations, dispensing tactical tax advice, conducting thorough compliance checks, supervising audits, and crafting articulate and insightful content. At Cygnet, Komal seamlessly blends her profound understanding of tax regulations with cutting-edge tax technology. Leveraging her competence, she adeptly transforms complex tax tech jargon into concise, impactful, and engaging content. This not only aids readers in comprehending tax-related topics with enlightening clarity but also ensures the delivery of narratives that resonate broadly.
