GST E-invoicing: A new era of efficiency and accountability in Indian taxation

Goods and Services Tax (GST) e-invoicing is a system implemented in India for generating and reporting invoices in a standardized electronic format. It was introduced to simplify the invoicing process and reduce errors while facilitating seamless data exchange between businesses and the Government. Under this system, businesses must generate invoices on their accounting or billing software and upload them to the GSTN portal, validating the information and issuing an Invoice Reference Number (IRN) and a digitally signed QR code.

Initially, the e-invoicing system was made mandatory for businesses with an annual turnover of more than Rs 500 crores. Subsequently, it was extended to businesses with an annual turnover of more than Rs 100 crores, and then to those with an annual turnover of more than Rs 50 crores. The phased implementation was done to ensure a smooth transition to the new system, provide sufficient time to businesses to make necessary changes to their systems and processes and address any issues that arose during the implementation.

The e-invoicing system is now mandatory for all businesses with an annual turnover of more than Rs 50 crores. This threshold was lowered to Rs.20 crore; however, from 1 October 2022, e-invoicing applies to businesses with a turnover of more than Rs.10 crore.  The threshold is further lowered to Rs. 5 crore with effect from 01.08.2023.

Despite the implementation of the e-invoicing system, there have been compliance issues. Suppliers are uploading such invoices on the IRP portal on the current date, irrespective of the date of issue of such invoice. Technologically, these E-invoices have been accepted by GSTN until now, covering up for the non-compliance. Rule 48(5) provides that if a specified registered person issues any invoice other than an E-invoice, such invoice shall not be treated as an invoice. The immediate impact of this clause is that no Input Tax Credit would be available to the recipient of such an invoice.

Government imposes time-limit on reporting old invoices on the e-invoice portals
To address these issues and foster timely compliance, the Indian Government has imposed a time limit on reporting old invoices on the e-invoice IRP portals for taxpayers with Aggregate Annual Turnover greater than or equal to 100 crores. Taxpayers in this category will be prohibited from reporting invoices older than 7 days from the date of reporting. This stipulation, however, will only apply to the document-type invoice, and there will be no such time restriction on reporting debit/credit notes.  However, in an advisory to taxpayers on May 6, GSTN has deferred the imposition of time limit of 7 days on reporting old E-invoices on the E-invoicing IRP portal for taxpayers with aggregate turnover greater than or equal to 100 crores by three months.

In order to ensure seamless compliance with the new mandate, it is imperative to understand the intricacies of the latest development. For instance, an invoice is dated April 1, 2023 but for some reason, it is not loaded on the IRP portal on the same date. Now, to safeguard the interests of the recipient supplier will report this invoice on the IRP portal later and issue an E-invoice to the recipient complying with all laws. This results in delay in reporting and data aggregation in government systems. Under the new requirement, such invoices cannot be reported after the 7-day window, that is to say, after April 8, 2023(in above case). The intricate validation system embedded within the invoice registration portal will effectively bar users from reporting invoices after the prescribed time limit. Taxpayers must remain cognizant of this time restriction and fulfill their tax obligations promptly, thus promoting operational excellence and cultivating a culture of compliance.

The impact of this development on taxpayers who pay a substantial amount of tax is profound. The new time limit will have a marked influence on the reporting process, necessitating significant changes to their existing systems. Taxpayers will need to ensure that they are adequately prepared to comply with this mandate and align their systems accordingly.

Furthermore, this new requirement may also impact the taxpayer’s Input Tax Credit (ITC) if their supplier cannot generate an e-invoice. Such a situation could lead to the taxpayer being unable to claim ITC, resulting in an augmented tax liability. Therefore, it is incumbent upon taxpayers to ensure that their suppliers are aware of this mandate and equipped to comply with it.

To provide taxpayers ample time to acclimate to this new requirement, the government has earlier proposed implementing it from 01.05.2023 onwards which is now deferred till three months. This will furnish taxpayers with a sufficient grace period to make the necessary changes to their systems, thus ensuring a smooth and seamless transition to the new requirement. The decision to impose a time limit on reporting invoices represents a significant step towards cultivating a more efficient, effective, and streamlined tax collection process. However, taxpayers must be cognizant of the impact of this new requirement.

GST collection over Rs 1.51 trillion in October, second highest ever

Source: Business Standards, 01 November 2022

India’s tax collection from the sale of goods and services increased to Rs 1.51 trillion in October, driven by festive demand, higher rates, and better tax compliance.

The revenue for October is the second-highest monthly collection, next only to April 2022, and it is for the second time the gross GST collection has crossed Rs. 1.50 trillion mark.

October also saw the second-highest collection from domestic transactions after April. This is the ninth month, and for the eighth month in a row, that monthly GST revenue has been more than Rs 1.4 trillion.

In September 2022, as many as 83 million e-way bills were generated, compared to 77 million in August 2022.

Of the total gross GST revenue collected in October, central GST is Rs 26,039 crore, state GST is Rs 33,396 crore, integrated GST is Rs 81,778 crore (including Rs 37,297 crore collected on import of goods), and cess is Rs 10,505 crore (including Rs 825 crore collected on import of goods), according to the provisional data released by the finance ministry said on Tuesday.

GST collection again tops Rs 1.4 lakh crore in August, now for 6 months in a row; shows high buoyancy

Source: Financial Express, 01 September 2022

GST collection in August soared 28 per cent on-year to Rs 1.43 lakh crore, on the back of economic recovery. Monthly GST revenues collection topped Rs 1.4 lakh crore for the six months in a row. Last year in August, GST revenue collection stood at Rs 1.12 lakh crore. The Finance Ministry said till August 2022, GST revenue has jumped 33 per cent displaying a very high buoyancy. “This is a clear impact of various measures taken by the Council in the past to ensure better compliance. Better reporting coupled with economic recovery has been having a positive impact on the GST revenues on a consistent basis,” the finance ministry said in a statement.

During the month, revenues from import of goods were 57 per cent higher and the revenues from domestic transactions (including import of services) were 19 per cent higher than the revenues from these sources during the same month last year. Of the total GST collections, Central GST was Rs 24,710 crore, while State GST was Rs 30,951 crore. Integrated GST was Rs 77,782 crore and cess was Rs 10,168 crore. The collections hit a record high of Rs 1.68 lakh crore in April, 2022.

The Finance Ministry said till August 2022, GST revenue has jumped 33 per cent displaying a very high buoyancy. During the month of July 2022, 7.6 crore e-way bills were generated, which was marginally higher than 7.4 crore in June 2022 and 19% higher than 6.4 crore in June 2021.

Saurabh Agarwal, Tax Partner, EY said that while the GST revenue collections remain above 1.4 lakh crores for 6 consecutive months, decline in cess collections by approximately 7% compared to last month indicate decreased demand of goods such as automobile, cigarettes and aerated beverages. “Effectively, the robust GST collections can be said to be having very limited impact of inflation on India’s economy compared to world,” he added.

CBIC clarifies ambiguity on GST on pre-packaged items, new rates from Monday

Source: Economic Times, 17 July 2022

The Central Board of Indirect Taxes and Customs (CBIC) on Sunday clarified that all pre-packaged items containing a quantity up to 25 Kg, will attract a GST of 5%.

The CBIC said that the items, which are pre-packaged in above 25 Kg, in a single packet will be exempt from GST.

Also the clarification said that if several packages intended for retail sale to the ultimate consumer, say 10 packages of 10 Kg each, are sold in a larger pack, then GST would apply to such supply. Such a package may be sold by a manufacturer through a distributor.

For instance a package of rice containing 50 Kg would not be considered a pre-packaged and labelled commodity for the purposes of GST levy, even if rule 24 of Legal Metrology (Packaged Commodities) Rules, 2011, mandates certain declarations to be made on such wholesale items.

The CBIC also clarified that packaged commodities supplied for consumption by industrial consumers or institutional consumers are excluded from the purview of the Legal Metrology Act. Therefore no GST will be attracted to this.

In case a manufacturer is supplying to distributor, to dealer and to retailer then GST will be applicable to it but the manufacturer/wholesaler/retailer would be entitled to input tax credit on GST charged by his supplier in accordance with the Input Tax Credit provisions in GST.

The clarification came after many businesses said that the notification issued by the CBIC has left much ambiguity and may be subject to multiple interpretations.

The Finance Ministry has notified GST rates for various goods sold as pre-packaged and pre-labelled beside others, which was decided by the 47th GST council meeting held in Chandigarh.

The notification, said that “expression ‘pre-packaged and labelled’ means a ‘pre-packaged commodity’ as defined in clause (l) of section 2 of the Legal Metrology Act, 2009.

Under the Legal Metrology Act “pre-packaged commodity” means a commodity which without the purchaser being present is placed in a package of whatever nature, whether sealed or not, so that the product contained therein has a pre-determined quantity.

Experts said that the notification mentioned about retail sales only, so, the issue is will declaration on packages of above 25 kgs also required and they sought clarification from the government.

Saurabh Agarwal, Tax Partner, EY India, said, “The specified pre-packaged and labelled commodities (without registered brand name) such as wheat, rice, maize, makhana, specified flours, etc would be liable to 5% GST from 18 July 2022 increasing the cost for the customer”.

He added that it is important for industry to examine whether the specified pre-packaged commodities are required to have a declaration on it under the Legal Metrology Act, 2009 as the levy of GST on such products have been linked to the declarations under the said Act.

Small Traders Protests
Trade bodies from across the country have been writing to the finance minister to withdraw the five percent GST imposed on unbranded pre-packaged food items.

Sanjay Chhabria, Director Nexdigm, adds,” This move is likely to have adverse implications on the small traders and retailers who hitherto were outside the GST net and had neither obtained any GST registration nor undertaken any compliances”.

He added that with such pre-packaged and pre-labelled food items getting costlier for the end consumers, the levy could lure them to more established brands, or prefer items which are loosely sold given that they continue to be exempt from GST.

Changes in GST rates to take effect from July 18

Source: Financial Express, 23 June 2022

The fitment committee of the Goods and Services Tax (GST) Council has suggested a cut in the tax rate on ostomy appliances from 12% to 5% and a uniform tax of 5% on orthopedic implants.

The panel, whose recommendations will be considered by the Council on June 28-29 in Chandigarh, also proposed to clarify that mango pulp attracts 12% GST not 5% and nepa stones 5%.

The fitment committee suggested reduction in the GST rate on ostomy appliances, used by patients suffering from ulcerative colitis such as pouch, flange wafer and stoma adhesive, to bring them at par with the concessional rate of 5% for urine bags.

To avoid complexities involved in taxing of orthopedic implants at the rate of 5% or 12% on different items, the council suggested a uniform tax rate of 5%. Currently, GST is levied at the rate of 12% on splints, other fracture appliances, artificial parts of the body and other appliances which are worn or carried.

Currently, polished stone tiles attract 18% GST. However, Kota stone and ceramic stiles attract 5% GST. Andhra Pradesh had requested the council that minor polished stones can not be treated with mirror polished stones which attract 18% GST and sought 5% GST on nepa stones, a variety of dimensional limestone. The fitment panel has recommended that nepa stones without mirror polishing should be taxed at 5%.

GST Council to consider lowering tax on ostomy and orthopedic items

Source: Financial Express, 23 June 2022

The fitment committee of the Goods and Services Tax (GST) Council has suggested a cut in the tax rate on ostomy appliances from 12% to 5% and a uniform tax of 5% on orthopedic implants.

The panel, whose recommendations will be considered by the Council on June 28-29 in Chandigarh, also proposed to clarify that mango pulp attracts 12% GST not 5% and nepa stones 5%.

The fitment committee suggested reduction in the GST rate on ostomy appliances, used by patients suffering from ulcerative colitis such as pouch, flange wafer and stoma adhesive, to bring them at par with the concessional rate of 5% for urine bags.

To avoid complexities involved in taxing of orthopedic implants at the rate of 5% or 12% on different items, the council suggested a uniform tax rate of 5%. Currently, GST is levied at the rate of 12% on splints, other fracture appliances, artificial parts of the body and other appliances which are worn or carried.

Currently, polished stone tiles attract 18% GST. However, Kota stone and ceramic stiles attract 5% GST. Andhra Pradesh had requested the council that minor polished stones can not be treated with mirror polished stones which attract 18% GST and sought 5% GST on nepa stones, a variety of dimensional limestone. The fitment panel has recommended that nepa stones without mirror polishing should be taxed at 5%.

Goods and Services Tax Council may revise norms for GST levy

Source: Financial Express, 20 April 2022

With companies complaining about the levy of tax on allocation of salary cost of head-office employees to branches under the so-called cross-charge mechanism, the Goods and Services Tax Council will likely refer the matter to its law committee to review its applicability.

The levy has increased the cost of firms in sectors currently exempt from goods & services tax (GST) and raised the compliance burden for most others.

“References have come from many places, including some industry associations on the matter. It will be taken to the GST law committee,” a senior official told FE.

Industry sources said there has been a sudden surge in the Directorate General of GST Intelligence (DGGI) investigation where issues such as inclusion of salary in cross-charge is being raised. GST is 18% on supply of services under cross charge.

In December 2021, the Appellate Authority for Advance Ruling (AAAR), Maharashtra had ruled in the case of Cummins India that allocation and recovery of the salary of the employees of the head office from the branch office/units will be subject to GST. The company had sought a ruling on the applicability of GST on allocation and recovery of the salary cost of the head office’s employees from the branch offices in different states.

The objective of cross-charge was to pass on the input tax credit from head office to branch offices in different states seamlessly for GST paid on common services of a company such as rent, IT and advertisement, industry sources said. However, there are no specific guidelines on the manner and structure of cross charge or whether to include salary costs of head office staff or not in it for taxation purpose.

“The GST Council needs to examine whether cross charge mechanism should continue and in what form. The most important issue is as to whether salary of one office (typically head office) staff has to be included in this for levying GST,” said Pratik Jain, Partner, Price Waterhouse & Co LLP.

The most impacted sectors are those exempt from GST such as healthcare, education, electricity and petroleum as input tax credit is not available, Jain said. It is also adversely impacting sector such as restaurants and real estate which don’t get input tax credit on taxes paid on input services and it becomes an additional cost for them.

Companies in these sectors, which were already suffering from GST on cross charges for common services, will see further rise in operational cost due to inclusion of salary. For other companies, it is more sort of a compliance burden as taxes paid in supply of services to branches are recovered through ITC mechanism.

In the pre-GST regime, any supply of service between head office and branch office was not taxable. Hence, it has been a matter of dispute between companies and tax officials after the GST was rolled out in July 2017. Inclusion of salary in cross charges for GST has further complicated the matter as industry is of the view that employees work for the company as a whole and not employed for head office or branches.

Steady rise in generation of e-way bills so far in February

Source: Financial Express, 22 February 2022

Generation of e-way bills for inter-state trade under the goods and services tax (GST) system stood at 24.27 lakh in the week ended February 20, 3.2% higher than in the week ended January 23, reflecting an improvement in commerce.

The daily e-way bills averaged 23.83 lakh in the first 20 days of February, with the number coming in at 4.77 crore. Generation of daily e-way bills had declined 4% on month to 22.2 lakh in January, compared with 23.1 lakh in December.

E-way bills generation is a proxy of GST revenues. Gross GST collections came in at Rs 1.41 lakh crore in January (December sales), the highest mop-up in the history of the comprehensive indirect tax that was launched in July 2017.

Even though e-way bills generation has declined by 4% in January over December, the GST collections could still be around Rs 1.3 lakh crore for February (January sales) going by the recent trend.

Bills generation at 7.35 crore in October was the highest monthly data, thanks to a spurt in goods dispatches for stocking ahead of the festival season by shopkeepers and traders.

Government extends FY21 GST annual return filing deadline till February 28

Source: Financial Express, 30 December 2021

The government has extended by two months till February 28 the deadline for businesses to file GST annual returns for 2020-21 fiscal ended March 2021.

“The due date for furnishing annual return in FORM GSTR-9 & self-certified reconciliation statement in FORM GSTR-9C for the financial year 2020-21 has been extended from 31.12.2021 to 28.02.2022,” the Central Board of Indirect Taxes & Customs (CBIC) said in a late-night tweet on Wednesday.

GSTR 9 is an annual return to be filed yearly by taxpayers registered under the Goods and Services Tax (GST). It consists of details regarding the outward and inward supplies made or received under different tax heads. GSTR-9C is a statement of reconciliation between GSTR-9 and the audited annual financial statement.

Furnishing of the annual return is mandatory only for taxpayers with aggregate annual turnover above Rs 2 crore while a reconciliation statement is to be furnished only by the registered persons having aggregate turnover above Rs 5 crore.

A host of changes in GST law will come into effect from January 1

Source: Economic Times, 27 December 2021

The GST regime will see a host of tax rate and procedural changes coming into effect from January 1, including liability on e-commerce operators to pay tax on services provided through them by way of passenger transport or restaurant services. Also, the correction in inverted duty structure in footwear and textile sectors would come into effect from Saturday wherein all footwear, irrespective of prices will attract GST at 12 per cent while all textile products, except cotton, including readymade garments will have 12 per cent GST.

While the passenger transport services provided by auto rickshaw drivers through offline/ manual mode would continue to be exempt, such services when provided through any e-commerce platform would become taxable effective January 1, 2022, at 5 per cent rate.

The procedural changes that would come into effect include e-commerce operators, such as Swiggy and Zomato, being made liable to collect and deposit GST with the government on restaurant services supplied through them from January 1. They would also be required to issue invoices in respect of such services.

There would be no extra tax burden on the end consumer as currently restaurants are collecting and depositing GST. Only, the compliance of deposit and invoice raising has now been shifted to food delivery platforms.

The move comes after government estimates showed that tax loss to exchequer due to alleged underreporting by food delivery aggregators is Rs 2,000 over the past two years.

Making these platforms liable for GST deposits would curb tax evasion.

The other anti-evasion measures which would come into effect from the new year include mandatory Aadhaar authentication for claiming GST refund, blocking of the facility of GSTR-1 filing in cases where the business has not paid taxes and filed GSTR-3B in the immediate previous month.

Currently, the law restricts the filing of returns for outward supplies or GSTR-1 in case a business fails to file GSTR-3B of the preceding two months.

While businesses file GSTR-1 of a particular month by the 11th day of the subsequent month, GSTR-3B, through which businesses pay taxes, is filed in a staggered manner between the 20th-24th day of the succeeding month.

Also the GST law has been amended to allow GST officers to visit premises to recover tax dues without any prior show-cause notice, in cases where taxes paid in GSTR-3B is lower based on suppressed sales volume, as compared to supply details given in GSTR-1.

The move would help curb the menace of fake billing whereby sellers would show higher sales in GSTR-1 to enable purchasers to claim input tax credit (ITC), but report suppressed sales in GSTR-3B to lower GST liability.