Demystifying Draft Invoice Rules for Goods and Service Tax

The Model GST Law was placed in the public domain on 14th June 2016 and thereafter we could see a lot of moment on the implementation of GST like, passage of the Constitutional Amendment Bill the Rajya Sabha on 3rd August 2016 and the same being ratified in the Lok Sabha on 8th August 2016. Majority of the states have also adopted the same in their state assemblies in a very short span of time paving the way for the President to give the assent on the Constitutional Amendment Bill and thereafter the Central Government has constituted the Goods and Service Tax Council, key body for the rollout of GST in India. The GST Council had its first meeting on 22nd and 23rd of this month.

The GST Council in its first meeting has taken the following decisions

  1. Increase the threshold limit from Rs 10 Lacs to Rs 20 Lacs for all states except for the north eastern states
  2. Increase the threshold limit from Rs 5 Lacs to Rs 10 Lacs in case of north eastern states
  3. The jurisdiction of the taxpayers will be with the state governments on the tax payers whose turnover is less than Rs 150 Lacs in case of supply of goods and in case of Service, the same will be with the central government as the state tax officials do not have the complete knowledge and expertise on the assessment of service tax. The same will be passed on to state governments once they have the expertise on the same down the line.

The government has issued the Draft Rules and these rules play a key role in the adoption of the GST by the trade and industry and also provide information on the do’s under GST. The Draft Rules are issued for the following areas

  • Draft Registration Rules
  • Draft Registration formats
  • Draft Payment Rules
  • Draft Payment formats
  • Draft Invoice Rules
  • Draft Invoice formats

Draft Invoice Rules

The information given in the Draft Invoice Rules is in addition to the information provided under Section 23 of the Model GST Law. It lists out all the elements to be shown on different documents likes the Tax Invoice, Bill of Supply, Supplementary Tax Invoice and Debit or Credit Notes and issue of tax invoice in special cases along with the Manner of Issue of Tax Invoice.

One of the important or major change is the same tax invoice is applicable for the Central as well as state taxes which is not the case in the current tax requirements.

The Manner of issue of tax invoice is similar to the provisions given in Central Excise with

(a) the original copy being marked as ORIGINAL FOR RECIPIENT;

(b) the duplicate copy being marked as DUPLICATE FOR TRANSPORTER; and

(c) the triplicate copy being marked as TRIPLICATE FOR SUPPLIER.

From the above, it is clear that goods have to be accompanied with the tax invoice, as the point b says duplicate for the transporter. There is an interpretation that under GST, tax invoice need not accompany the goods.

The usage of the word gives room for one more taught in case of branch transfers, the FAQ’s released by the department says that in case of branch transfer there is no need to issue tax invoice, if it is within the state, but when the goods are being shipped with what document the same should be sent. Do we have a concept of Challan or some other document? We need to wait for some more  time on clarity on such transactions.

The information to be shown on the Tax Invoice

(a) name, address and GSTIN of the supplier;

(b) a consecutive serial number containing only alphabets and/or numerals, unique for a financial year;

(c) date of its issue;

(d) name, address and GSTIN/ Unique ID Number, if registered, of the recipient;

(e) name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered and where the taxable value of supply is fifty thousand rupees or more;

(f) HSN code of goods or Accounting Code of services;

(g) description of goods or services;

(h) quantity in case of goods and unit or Unique Quantity Code thereof;

(i) total value of goods or services;

(j) taxable value of goods or services taking into account discount or abatement, if any;

(k) rate of tax (CGST, SGST or IGST);

(l) amount of tax charged in respect of taxable goods or services (CGST, SGST or IGST);

(m) place of supply along with the name of State, in the case of a supply in the course of inter-State trade or commerce;

(n) place of delivery where the same is different from the place of supply;

(o) whether the tax is payable on reverse charge;

(p) the word “Revised Invoice” or “Supplementary Invoice”, as the case may be, indicated prominently, where applicable along with the date and invoice number of the original invoice; and

(q) signature or digital signature of the supplier or his authorized representative.

Provided that the Board/Commissioner may, by notification, specify –

(i) the number of digits of HSN code for goods or, as the case may be, the Accounting Code for services, that a class of taxable persons shall be required to mention, for such period as may be specified in the said notification, and

(ii) the class of taxable persons that would not be required to mention the HSN code for goods or, as the case may be, the Accounting Code for services, for such period as may be specified in the said notification:

The above information to be provided on the Tax Invoice is similar to that of the information we provide on the excise invoice expect for not showing the range and divisional details of the central excise.

The following are the notable differences under GST on comparing with the existing tax invoice

  • HSN code to be shown mandatorily on the tax invoice for all the taxes
  • Service Tax accounting code to be shown, which is not there currently
  • In case of supply of goods, the reverse charge details have to be shown on the tax invoice, this is similar to the current provision for services
  • There is a restriction on the invoice number format, it says it has to be either numerical or alphabetic only. The reason for this could be upload of invoices and matching as a string can cause problems in some of the system checks
  • Rule 1 (j) talks about abatement to be shown on the tax invoice, but if we see the format of the tax invoice there is no specific provision where we can show the same. Probably the tax rate to shown is net of abatement. If such is the case, the validation in the common portal should be built accordingly.
  • Sub-Rule 4 of Rule 2 talks about the Invoice Reference Number, which needs to be shown on the tax invoice and this number can be obtained only after uploading the same on the common portal. Does that mean, the tax invoice has to be printed only after obtaining this number? The same is given clearly in the format of the tax invoice given by the department.This means that before every shipment goes out, the tax invoice has to be uploaded on the common portal and reference number is to be derived and then printed on the tax invoice. It also means that internet connection is mandatory now and it will be challenge in case of plants located in remote locations.
  • No longer required to maintain two different series of tax invoices for domestic and exports as in central excise today. It will be an organizational call.

There are some special cases under which a Tax Invoice can be issued like for exports on payment of duty or export under bond. Another interesting to be noted is that, it talks about the printing of the ARE -1 number on the tax invoice, does this mean that we will still have the concept of deemed exports under GST, where goods can be purchased under existing process only. This is contrary to the views expressed by the trade and industry and tax consultants.

In the above cases, the invoice has to be endorsed clearly under which the exports are under which the supply is taking place “SUPPLY MEANT FOR EXPORT ON PAYMENT OF IGST” or “SUPPLY MEANT FOR EXPORT UNDER BOND WITHOUT PAYMENT OF IGST”. In such cases the information shown in Clause (e) has to be replaced with the following information

  • name and address of the recipient;
  • address of delivery;
  • name of the country of destination; and
  • number and date of application for removal of goods for export [ARE-1].

In case of services, the existing provisions of issue of service tax invoice to be issued within 30 days on completion of service is retained under GST also.

There is also a provision for issue of supplementary invoices or debit or credit notes in line with section 23 of the Model GST Law. The Model GST Law or the Invoice rules does not talk about the provision of issue of debit or credit notes in case of shortage or rejections or transit loss on quantity. This remains an open question.

Rule 4, does not talk about the above requirements but asks for showing the following information on these documents

(a) name, address and GSTIN of the supplier;

(b) nature of the document;

(c) a consecutive serial number containing only alphabets and/or numerals, unique for a financial year; (d) date of issue of the document;

(e) name, address and GSTIN/ Unique ID Number, if registered, of the recipient;

(f) name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered;

(g) serial number and date of the corresponding tax invoice or, as the case may be, bill of supply;

(h) taxable value of goods or services, rate of tax and the amount of the tax credited or, as the case may be, debited to the recipient; and

(i) signature or digital signature of the supplier or his authorized representative.

The rules also give a provision to issue a consolidated revision documents for non-registered taxable supplies, in case if the need arises. There is also a provision to issue a consolidated revised document in case of interstate supplies also if the amount is less than Rs 2.50 Lacs

Rule 5 details about the provision on the  issue of tax invoices in special cases like by input service distributor or a banking company or a transport operator.

The tax invoice to be issued by the input service distributor should contain the following information

(a) name, address and GSTIN of the Input Service Distributor;

(b) a consecutive serial number containing only alphabets and/or numerals, unique for a financial year;

(c) date of its issue;

(d) name, address and GSTIN of the supprovies plier of services, the credit in respect of which is being distributed

and the serial number and date of invoice issued by such supplier;

(e) name, address and GSTIN of the recipient to whom the credit is distributed;

(f) amount of the credit distributed; and

(g) signature or digital signature of the supplier or his authorized representative:

In the case of banking company or non-banking company or a financial institution, should show the information mentioned in Sub-Rule 1 of Rule 5 by calling the document in whatsoever name even though it is not serially numbered.

Not sure how will the common portal handle such cases as there is serial number for these transactions and also will there be a provision to upload the documents without serial number i.e invoice number? There can be cases where the banking charges are more than Rs 2.50 Lacs especially in case of Letter of Credit or bill discounting etc.

In case of goods transport agency, the information given in the sub-rule 1 of Rule 5 should be contained along with the gross weight, net weight, name of the consignor and the consignee, registration number of goods carriage in which the goods are transported, details of goods transported, details of place of origin and destination, GSTIN of the person liable for paying tax whether as consignor, consignee or goods transport agency, and also contains other information as prescribed under rule 1.

Bill of Supply

Rule 3 is in line with the provisions of Section 23 of the Model GST Law, where in the tax payer deals with exempted supplies, he can issue a bill of supply in lieu of tax invoice and it should contain the following information

(a) name, address and GSTIN of the supplier;

(b) a consecutive serial number containing only alphabets and/or numerals, unique for a financial year;

(c) date of its issue;

(d) name, address and GSTIN/ Unique ID Number, if registered, of the recipient;

(e) HSN Code of goods or Accounting Code for services;

(f) description of goods or services;

(g) value of goods or services taking into account discount or abatement, if any; and

(h) signature or digital signature of the supplier or his authorized representative:

The taxpayer need not issue a bill of supply if the transaction value is less than Rs 100 unless asked by the buyer.

The taxpayer has to issue a consolidated bill of supply end the day for all the cases where he has not issued a bill of supply during the day. This provision is again to keep track of all such transactions which are not being tracked directly.

From the invoice formats it is clear that in case of costs like freight, insurance, packing charges should be part of the taxable value of the goods.

Any views or opinions represented above are personal and belong solely to the author and do not represent those of people, institutions or organizations that the owner may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.

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2 thoughts on “Demystifying Draft Invoice Rules for Goods and Service Tax

  1. First of all my congratulations to CMA Mallikarjuna Guptagaru for this informative and educative website. However, for the purpose of avoiding confusion, may I request that the date of last update of this webpage be given somewhere. For example, the topline on the page says that the post was made on 27 Sep2016. However, the other lines in the first para read as under:
    “The Model GST Law was placed in the public domain on 14th June 2017 and thereafter we could see a lot of moment on the implementation of GST like, passage of the Constitutional Amendment Bill the Rajya Sabha on 3rd August 2017 and the same being ratified in the Lok Sabha on 8th August 2016.”
    Since we are now in April 2017, we are not clear whether the month is wrong or the year is wrong. Date of last update will clear this doubt to some extent.
    I observed similar confusion in one more page also.

    Like

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