Over the past six months, we witnessed the gradual implementation of various e-invoicing provisions based on the turnover of the taxpayers. Various notifications have been issued, prescribing the taxpayers, to comply with e-invoicing requirements. Such taxpayers have been generating IRNs and QR codes from the IRP and issuing tax invoices to the recipients in respect of their outward supplies.
The concept of e-invoicing at this scale is new in the Indian indirect tax environment and its impact on regular commercial practices has just started to emerge. Certain aspects could have a substantial indirect impact which would become more visible only in the days to come.
We have analysed and highlighted the legal provisions governing e-invoicing, the reporting mechanism in GST and the present conflicting industry practises that may lead to hardships at a later stage.
1) As per the GST legislation, an invoice has been defined to mean an invoice or tax invoice issued as per Section 31. Further, the said section prescribes that in respect of goods, a tax invoice is to be issued before or at the time of removal/ delivery of goods, while in case of services, an invoice shall be issued before or after the provision of service but within 30 days from the date of supply of service.
2) Registered persons are required to prepare a tax invoice by uploading specified particulars of the invoice (in FORM GST INV-01) on Invoice Registration Portal (IRP) and obtain an Invoice Reference Number (IRN) along with the QR code. Such IRN embedded QR code is a mandatory particular on the tax invoice.
3) The GST legislation also prescribes that any tax invoice issued without the generation of the IRN shall not be treated as an invoice.
Conjunctive reading of the above provisions leads to the following inference:
An invoice must be issued on or before the undertaking of certain events viz. delivery of goods/provision of service. An IRN embedded QR code is mandatory on the invoice and an invoice would attain the identity of tax invoice only on the generation of the IRN. Till the time the IRN is not generated, an invoice would be invalid.
Now that we have established the time of issuing and the validity of the invoice, it is critical to understand the relevance of a tax invoice from the perspective of payment of tax. Legislature has prescribed that liability to pay GST is linked to the ‘Time of Supply’. The time of supply of goods/ services is consequentially linked to the date of issue of invoice by the supplier.
In simple words, liability to pay GST is linked to the date of issue of the tax invoice or supply, whichever is earlier. An invoice would become a valid tax invoice only on the generation of the IRN. Details of invoices for which the IRN is generated is then auto-populated in GSTR-1 of the month to which such invoice pertains.
To illustrate, an invoice in the ERP is raised on 31 March and the e-invoicing is done in the subsequent month. The situation compounds if the GSTR 1 for March is already filed before the e-invoicing.
Given the above, the issue that has cropped up is ‘what would be considered as the invoice date where the IRN is generated after the date of invoice and accordingly the time for payment of tax and reporting in returns?’
In the above scenario, the tax invoice would become valid or attain validity only on the generation of the IRN. So, in legal terms, liability to pay GST should be triggered only on the generation of the IRN provided the supply has not been done. However, in the present situation, the liability to pay GST is being derived from the date on which the tax invoice is generated by the ERP, irrespective of the date of the generation of the IRN (Acknowledgement date).
We believe that in the above instance, there would not be any delay in the payment of the tax liability as taxpayers are reporting such invoices and paying taxes in GST returns based on the tax invoice generation date, however, if such reporting is correct is the question that needs to be addressed. GST is a substantial cash flow for any taxpayer. The above practice is resulting in payment of tax one month in advance.
Further, this would lead to another set of reconciliation between tax invoices generated in the ERP, tax invoice for which IRN is generated and not generated, tax invoices for which e-way bill is generated and not generated.
The government needs to think on these lines and clarify whether the invoice date or the IRN date needs to be considered. At the same time, taxpayers should also be mindful of this fact and accordingly manage the compliances and tax payments to avoid any compliance -related challenges.
The writer is Partner - Indirect Tax, BDO India.