NOVEMBER 10, 2020

By Akhil C Varghese, CA

AS a measure to curb tax evasion, increase compliance and reduce issues relating to input tax credit verification ¹, with effect from 1st October 2020, the Government has introduced system of E-invoicing under the GST law. As per the provisions of law prevailing till date (which are discussed below), an e-invoice is required to be generated by registered person whose aggregate turnover in any preceding financial year from 2017-18 onwards exceeds Rs. 500 crores except certain categories of persons.

E-Invoicing, unlike the nomenclature seems to suggest, is not a method of preparing GST invoice on the GST Electronic Portal but preparing the invoice in the system of the registered person after obtaining Invoice Reference Number (IRN) by uploading the necessary details and registering his transaction on the Invoice Registration Portal (IRP). In other words, the specified person registered under the GST law would continue to prepare their invoice in their own system . Number of learning materials and FAQs are available in the public domain regarding the process by which e-invoicing has to be done.

The term 'e-invoice' i.e. electronic invoice, also tends to create the impression that it is applicable only in relation to 'invoices' issued under the GST law and this has become the cause of a confusion in the industry, especially in the context of credit/debit notes issued in compliance of the GST law.

This article, in addition to analysing whether a registered person is legally bound to follow e-invoicing procedure for credit note and debit note issued under the GST Law, also discusses the issues that can be raised by the department if the e-invoicing procedure is not followed for credit note and debit note issued under the GST Law.

Legal provisions relating to e-invoice

The Central Government vide Notification No. 68/2019–C.T., dated 13.12.2019 inserted the following sub-rules in Rule 48 of the CGST Rules, 2017 ('CGST Rules') which read as under:

"(4) The invoice shall be prepared by such class of registered persons as may be notified by the Government, on the recommendations of the Council, by including such particulars contained in FORM GST INV-01 after obtaining an Invoice Reference Number by uploading information contained therein on the Common Goods and Services Tax Electronic Portal in such manner and subject to such conditions and restrictions as may be specified in the notification.

(5) Every invoice issued by a person to whom sub-rule (4) applies in any manner other than the manner specified in the said sub-rule shall not be treated as an invoice.

(6) The provisions of sub-rules (1) and (2) shall not apply to an invoice prepared in the manner specified in sub-rule (4).".

[Emphasis supplied]

The aforesaid provisions clearly use the term 'invoice'. Section 2(66) of the CGST Act, 2017 ('CGST Act') defines "invoice" or "tax invoice" means the tax invoice referred to in Section 31 of the CGST Act.

As per Section 31 of the CGST Act, a registered person supplying taxable goods or taxable services is required to issue tax invoice in such manner containing such particulars as prescribed under the CGST Rules. The tax invoice must contain such particulars as prescribed in Rule 46 of the CGST Rules and has to be issued in such manner as prescribed under Rule 48 of the CGST Rules. The Central Government vide Notification No. 72/2020–C.T., dated 30.09.2020 amended Rule 46 providing that the tax invoice referred in Section 31 shall contain one more particular which is Quick Response code, having embedded Invoice Reference Number (IRN) in it, in case invoice has been issued in the manner prescribed under sub-rule (4) of rule 48.

Here, the author would like to highlight that Section 31 of the CGST Act does not deal with debit note and credit note issued under the GST Law. The provisions related to debit note and credit note is separately covered under Section 34 of the CGST Act.

The credit note and debit note must contain such particulars as prescribed under Rule 53(1A) of the CGST Rules. The said rule does not contain any particulars relating to QR code as specifically provided in Rule 46 of the CGST Rules.

Hence, it is evident that under the GST law, credit note and/or debit note are distinct from invoice and are governed by provisions different from the provisions governing invoices.

In light of the above analysis, on strict reading of aforementioned legal provisions prevailing till date, in view of the author, a registered person who is covered under the e-invoicing provisions, is not liable to issue credit note and debit note by following the e-invoicing procedure. In other words, QR code, having embedded IRN is not required to be included in the credit note and debit note issued under section 34 of the CGST Act.

Having made the above analysis, it is also important to highlight the FAQs issued by the GSTN which clarify that credit notes and debit notes are covered under e-invoicing.

The relevant portion of the FAQ is extracted hereunder:

"9. What documents are presently covered under e-invoicing?

i. Invoices

ii. Credit Notes

iii. Debit Notes,

when issued by notified class of taxpayers (to registered persons (B2B) or for the purpose of Exports) are currently covered under e-invoice".

Further, the Format/Schema for e-invoice prescribed vide Notification No. 60/2020–C.T., dated 30.07.2020 also covers debit note and credit note as document types.

The FAQ as mentioned above is going beyond the scope of e-invoicing provisions prevailing in CGST Rules.

It needs to be noted that a similar issue of coverage of e-invoicing in respect of export transactions was resolved by the Government by including the activity of export also under e-invoicing.

In the same breath, we should also examine the issue that would be faced by a registered person who opts not to follow e-invoicing procedure while issuing credit note or debit note under the GST Law.

In terms of Rule 36 of the CGST Rules, debit note is one of the prescribed documents for claiming input tax credit. Further, under the GST Law, a debit note shall include a supplementary invoice also. Therefore, if the registered person who is required to follow the e-invoicing procedure has not followed the same while issuing debit note under the GST Law, then the department may rely on the FAQs and e-invoice schema issued by the Government and can question the input tax credit availed by the recipient based on the debit note. Similarly, the department can question the benefits to be availed by a registered person in the form of reducing the tax liability where the credit notes issued without having QR code. The said issues may then have to be contested legally.

Conclusion

Even though the legal provisions under the GST Law do not require the registered person to follow the e-invoicing procedure while issuing credit note and debit note, the FAQs and the e-invoice schema suggest that the intention of the Government is to include credit note and debit note also under e-invoicing system. It is highly possible that the Government can at any time amend the CGST Rules to include credit note and debit note also under the ambit of e-invoicing as we have already seen in the case of e-invoicing for export transactions. If the notification is issued with prospective effect, then the registered person has to develop their IT system within a short span of time to generate QR code for credit note and debit note also, but, if the notification is issued retrospectively from 1st October 2020, then the registered person who has not followed the e-invoicing procedure for the credit note and debit note issued, has to legally contest their case for the past transactions in addition to developing their IT system for the future transactions.

Therefore, it is advisable for the registered persons to develop their IT system and start issuing credit note and debit note also by following the e-invoicing procedure along with tax invoice in order to avoid any issues or litigation in the future.

(The author is a Senior Associate with Lakshmikumaran & Sridharan, Kochi and the views expressed are strictly personal.)

¹Para 37 of the Minutes of 35th GST Council Meeting held on 21st June 2019.