Taxation is one of the most important source of revenue for the government of any Country. Tax System in India can trace its origin since the ancient times in prehistoric texts such as Manusmriti and Arthshastra. Tax structure in India is a three tier structure made up by Central, State and Local Taxes.

There are mainly two classification of taxation – Direct Taxation and Indirect Taxation. Direct Taxes are collected on income and profits and paid directly to the government, whereas, indirect taxes are collected on any goods purchased or any service availed and are paid to the revenue authority through an intermediary on behalf of the end-consumer.

Prior to July, 2017, there were multiple state and central laws governing Indirect Taxation in India for different kinds of levy like- Sales Tax, Service Tax, Excise Duty, etc. Owing to the multiplicity and complexity of the taxes and their cumbersome compliance at both government and consumer end, the GST Law was enforced on July 01, 2017.

GST Law is hailed to be the Biggest Tax Reform in India since Independence. The aim while enforcing GST Law was to introduce a consumption-based tax, to unify all the existing central and state indirect taxes, to remove the cascading effect of tax as a whole, reduce the tax burden on the taxpayers and make the collection and process more transparent and reduction in tax evasion.

Need for introducing E-invoicing

It has been nearly four years since the implementation of GST Law. The new system has completely revolutionized the indirect taxation system of the nation and has achieved many of its target objectives. However, the tax collection has not been up to mark as was hoped while introducing the law. This slump may have been due to various factors, one of the major reason being tax evasion and fraud.

Therefore, the 37th GST Council Meeting in 2019 approved a standard E-invoice and issued a notification which paved a legal road map for E-invoice in India. Mandatory E- invoicing under GST was implemented on October 01, 2020, in a phased manner. E-invoicing is one of the biggest reforms under GST. It helps in ease of doing business and compliance.

What is E-invoicing?

E-invoicing or Electronic Invoicing is a standard digital invoice for goods and service provided by business firm generated at the government GST portal.[ii]

Under the mechanism, all the B-2-B (Business to Business) and Export invoices generated by a business need to be registered with the Government system i.e. the Invoice Registration Portal (IRP) and obtain a unique identification number for every invoice called Invoice Reference Number (IRN). Along with IRN, the IRP will also create a digitally signed QR code with select details from invoice and digitally sign the uploaded invoice data. Once an IRN is generated and invoice has been authenticated, its details shall be made available on the GST portal and EWB (E-way Bill) portal in real-time.[iii]

Who needs to generate E-invoice?

It is mandatory for taxpayers having aggregate turnover above INR 500 Crore in the financial year 2019-2020 to upload invoice details on the government portal, from October 01, 2020, while taxpayers having aggregate turnover above INR 100 Crore and taxpayers having aggregate turnover above INR 50 Crore have to upload invoice details on the government portal, from January 01, 2021 and April 01, 2021, respectively. [iv]

However, Insurance Companies, Banking Companies and NBFC, Goods Transport Agencies, Supplier of passenger transportation services, supplier of services by way of admission to the exhibition of cinematograph films in multiplex screens, SEZs, are excluded from issuing e-invoice till now.

Benefits and Challenges of E-Invoicing
The most important benefit of e-invoicing is that it shall help curb tax evasion and fraud. E-invoicing gives real-time access to data thereby limiting the manipulation as the invoices shall be generated before the transaction hence reducing fake invoices so one can claim only the correct input tax credit.

E-invoicing provided real-time tracking the invoices which are prepared by the supplier, allowing faster accessibility to input tax credit. It also facilitates generation of E-way bill, the taxpayers just have to upload details of the vehicle as the Part- A of the e-way bill is auto-filled.

E-invoicing assists in reduction in data entry as the invoice shall be uploaded on the common portal and the auto-filled details shall eliminate need for manual data-entry during GST-returns. Since, the details shall be auto-filled to the GSTR-1 return, there shall be no need to manually report B-2-B invoices twice.

The E-invoice uploaded shall be shared with the buyer thereby helping him reconcile his purchase orders and accept or reject the invoice. In case a person misplaces an invoice, the QR code shall help the person generate invoice in pdf format, any time he wants.

However, one has to keep in mind that the main purpose of introducing the e-invoicing system was to reduce tax evasion but presently only B-2-B (Business to Business) transactions are under the purview of e-invoicing and not B-2-C (Business to Consumer) transaction. The majority frauds happen in B-2-C (Business to Consumer) transaction as input tax credit is not involved.

Also, cancellation of an e-invoice on IRP is allowed only up to 24 hours, and any amendment, howsoever small is not possible without cancelling the whole invoice, thereby increasing the compliance and technicalities. The IRP stores the e-invoice only up to 24 hours, so an alternate storage space has to be created.

Impact of E-invoicing on the Economy

Introduction of E-invoicing has been a major push towards digital economy in India. The major benefit of e-invoicing is that it strives to create transparency in the taxation system and which boosts automated GST return filing process.

Until now, GSTR filings involved manual work and calculations which made them imminent to human error thereby leading to mismatch in the input tax credit value, ultimately resulting in the loss of millions annually. With the introduction of the e-invoicing the burden of GST return filing has been reduced, and hence the errors can be considerably reduced and mismatch in ITC value shall be curtailed. This shall lead to greater revenue collection.

With the implementation of e-invoicing in GST, real-time tracking of invoices can be done by the government and the vendors, this has ultimately result in reduction of frauds and fake GST invoices which is of major concern in today’s time. The prevalent practice amongst small business owners to produce ‘kaccha bill’ and later under-reporting of turnover has also be curtailed by introduction of e-invoicing as it has become difficult to under-value the retail sales as the wholesale purchases have already been reported.

E-invoicing, when it shall be fully implemented, help not only in boosting GST compliance, but shall also help in Income-Tax, as under-reporting of the sales by small businesses shall become tougher. This shall thereby drive the formalization of the economy.

As per the reports, the E-invoicing under GST had reported 17% growth GST collection in the month of November, 2020, two months after its implementation for businesses having aggregate turnover above INR 500 Crore. Since November 2020, GST collections have been on the rise and crossed the INR 1 lakh Crore benchmark.[v] This shows that E-invoicing is a step in the right direction and once fully implemented it can help boost economy of the country to a large extent.

The implementation of E-invoicing amongst all businesses transactions shall make GST in India an advanced information technology-enabled indirect tax system.
However, its true success shall depend on the technological facilities and advancement in India. The concerned revenue authority and the government should ensure that minimum technical glitches should occur during the E-invoicing process. India in general has a lack of infrastructure, especially in remote areas where connectivity is poor and filing of e-invoice can be a hassle.

Micro and Small enterprises, usually do not spend much on infrastructure and technology, e-invoicing shall become an extra expenditure for them. This can have a negative effect on the economy, as the enterprises shall elevate the prices of the end-product to compensate the extra burden.

Care should also be taken that the tax administration should not become too stringent with the advent of e-invoicing, and a healthy business friendly environment should prevail so that foreign investors are attracted to invest money in Indian economy which shall ultimately help in wealth and job creation.

Way Forward
E-invoicing under GST comes with its fair share of challenges which need to be addressed to make the process smoother. Since the main aim of e-invoicing is to curb tax fraud and evasion, the system should be extended to the B-2-C (Business to Consumer) Transactions as majority tax frauds are made during these. The technology aspect of e-invoicing should be made more robust to curtail unnecessary glitches.

Provision for amendment and storage of the invoices for more than 24 hours should be made.

Adequate training should be provided to the taxpayers and GST officers for proper implementation and usage of the e-invoicing system.

Conclusion
Implementation of E-invoicing under GST law is a welcomed step for the growth of the overall economy of the country. E-invoicing has been one of the major reforms under GST law. It has reduced the manual GST Return filing burden as well as the issue of tax fraud. The checks created by the system have a great potential to restrict and curtail the fake-invoice and under-valuation of sales and availment of higher input tax credit.

However, e-invoicing has increased the cost burden and work load of the businesses as they have to now follow additional steps of uploading and generating e-invoices. The government should make provisions to ease the pain of the taxpayers.

Nevertheless, E-invoicing system under GST Law has the potential to propel collection of GST leading to growth of the economy.

End-Notes:

1. *
2. All about GST E-invoice Generation Sysytem on portal. Available at saginfotech.com by Atul Mital published on April 07, 2021
3. All You need to Know About E-invoice under GST, What is E-invoicing? Available at irisgst.com by Shilpa Dhobale published on January 02, 2021.
4. GST Notification 88/2020-Central Tax, dt.10-11-2020, GST notification 89/2020-Central Tax,dt. 29-11-2020 GST Notification 05/2021-Central Tax, dt. 08-03-2021
5. E-invoicing under GST pick up speed, posts 17% growth in November, Authored by Dilasha Seth, published by Business Standard News on December 07, 2020

Written By: Yashi Srivastava - VI Semester LLB Student from ILS Law College, Pune