Changes in the e-invoice Validations Architecture

e-invoicing is implemented in India from 1^st Oct 2020 for taxpayers having turnover above ₹ 500 crores and now the threshold has been reduced to ₹ 50 crores from 1^st April 2021. The pace at which the Indian businesses have adopted is remarkable and all the credits to NIC for putting in place robust infrastructure which as ensured seamless experience to the taxpayers without any major glitches. The e-invoicing system is also undergoing constant changes from time to time based on the dynamic requirements of the taxpayers and their feedback. Some of the changes are announced and architectural changes have been made and they are

a) The existing Authentication API ver 1.03 is replaced with ver 1.04 from 10^th April 2021

b) Two new attributes have been added to the response JSON for “Get GSTIN Details” & “Sync GSTIN Details” and the newly added attributes are

i) Date of Registration

ii) Date of De-registration

c) IRNs cannot be generated if the Supplier or Recipient GSTINs are in “Suspended”, “Provisional” or “Inactive” or “Cancelled” status. This validation will ensure that IRNs are not generated for such recipients and will minimize the taxpayers exposure to that extent.

d) If the Registration status of the Supplier or Recipient is in “Cancelled” status, the document date should be between the Date of Registration and Date of De-registration. This validation will ensure that business is not impacted and the supplier will know the status of the recipient at the time of issue of invoice only and enable him to take commercial decisions accordingly.

e) If the recipient is an SEZ Unit or SEZ developer, supply types “SEZWP” or SEZWOP” are only enabled and rest of the supply types are disabled to provide better user experience with proper and meaningful validations.

f) The validation for the number of digits for the HSN code is also enhanced to meet the latest regulatory changes. The minimum number of HSN codes has been increased to 6 digits for taxpayers above ₹ 5 crores.

g) While generating E Way Bill, Vehicle Type (‘VehType’) can be set to ‘O’ (Over Dimension Vehicle) if the Transportation mode (‘TransMode’) is set as ‘4’ (Ship).

Even though the above validations are few but they are really taxpayer friendly by way of providing better user experience and also minimizing the exposure towards the errant taxpayers thereby safeguarding the genuine taxpayers. The increase in validation for HSN codes for taxpayers having turnover above ₹ 5 crores to 6 digits means that e-invoicing sooner or later will be applicable to taxpayers who are having turnover above ₹ 5 crores.

38th GST Council’s decisions regarding Law and Procedure related changes

The 38^th meeting of the GST Council met under the Chairmanship of the Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman here today. The meeting was also attended by the Union Minister of State for Finance & Corporate Affairs Shri Anurag Thakur  besides Finance Ministers of States & UTs and senior officers of Ministry of Finance.  The GSTCouncil recommended the following:

1. Grievance Redressal Committees (GRC) will be constituted at Zonal/State level with both CGST and SGST officers and including representatives of trade and industry and other GST stakeholders (GST practitioners and GSTN etc.). These committees will address grievances of specific/ general nature of taxpayers at the Zonal/ State level.
2. Due date for annual return in FORM GSTR-9 and reconciliation statement in FORM GSTR-9C for FY 2017-18 to be extended to 31.01.2020.
3. Following measures would be taken to improve filing of FORM GSTR-1:
   1. waiver of late fee to be given to all taxpayers in respect of all pending FORM GSTR-1from July 2017 to November 2019, if the same are filed by 10.01.2020.
   2. E-way Bill for taxpayers who have not filed their FORM GSTR-1 for two tax periods shall be blocked.
4. Input tax credit to the recipient in respect of invoices or debit notes that are not reflected in his FORM GSTR-2A shall be restricted to 10 per cent of the eligible credit available in respect of invoices or debit notes reflected in his FORM GSTR-2A.
5. To check the menace of fake invoices, suitable action to be taken for blocking of fraudulently availed input tax credit in certain situations.
6. A Standard Operating Procedure for tax officers would be issued in respect of action to be taken in cases of non-filing of FORM GSTR 3B returns.
7. Due date of filing GST returns for the month of November, 2019 to be extended in respect of a few North Eastern States.
8. The Council also approved various law amendments which will be introduced in Budget 2020.

[This note presents the decision of the GST Council in simple language for easy understanding which would be given effect through Gazette notifications/ circulars which alone shall have force of law. The same will be made effective from the date as specified in such notifications / circulars.]

 

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RM/KMN

All About Input Tax Credit Restriction

Self-Assessment of the liability and input tax credit are the two business-friendly measures rolled out in GST, and it is being misused by a section of the taxpayers. As a result of it, to curb the tax evasion on the supply side, e-way bills were introduced, and now it is completely operational. On the input tax credit side, the provisions of the act were clear that the buyer/recipient can avail input tax credit only on matching ( seller will file his return, and the same will be reflected in the buyers return, and there he was supposed to accept or reject or modify the same) and this was kept on hold based on the feedback received from the trade and industry. But off late, lots of cases of input tax credit frauds and tax evasion are being detected. To put an end to all these, the Government has decided to simplify the return filing process and also start implementing the same from the 1^st of Oct 2019, but the same is deferred till the 1^st of April 2020 basis of the decisions taken in the 37^th GST Council Meeting.

Like a bolt from the blue, on 9th Oct 2019, Notification No 49/2019 – Central Tax, dated 9th Oct 2019, was issued stating that matching is mandatory. There were a lot of interpretation issues on the effective date and amount of restricted input tax credit to be derived. To address the same, CBIC has issued a clarification on  Circular No. 123/42/2019– GST dated 11th Nov 2019.  As on date, most of the queries/interpretation issues have been cleared, baring a few. What is the restricted input tax credit, how it works etc., are explained in simple FAQs for the users to understand and comply with the latest GST Provisions.

FAQ’s on the restricted input tax credit

1. What is the effective date for matching?

The effective date of the matching and availing of the 20% restricted input tax credit is 9^th Oct 2019, which means it is applicable for filing of the returns for Sep 2019 also.

The wordings used in the “Notification No 49/2019 – Central Tax, dated 9th Oct 2019 “Save as otherwise provided in these rules, they shall come into force on the date of their publication in the Official Gazette.” The same is published in the Official Gazette on 9^th Oct 2019, only wide Gazette No REGD. NO. D. L.-33004/99. It is also confirmed wide Circular No. 123/42/2019– GST dated 11th Nov 2019.

2. What should I do as I have availed input tax credit without matching while filing the returns for Sep 2019?

At the time of filing GSTR – 3B for Oct 2019, you have to do the matching for both the months. For the unmatched invoices for the GSTR – 2A of Sep 2019, you have to reverse the same along with interest for the differential days @ 24% as per the provisions of Section 51 of CGST Act 2017.

3. On what basis GSTR – 2A and my purchase register should be matched?

As per the provisions of Rule 69 of the CGST Rules 2017, matching has between the purchase register and GSTR – 2A has to be carried out for the following

1. GSTIN of the Supplier
2. GSTIN of the Recipient / Buyer
3. Invoice or Debit Note Number
4. Invoice or Debit Note Date
5. Tax Amount

For every document, if any of the above fields do not match, then input tax credit cannot be availed.

4. What could be the reasons for the differences between GSTR – 2A and my purchase register?

1. The supplier must not have filed the return
2. The supplier has not uploaded the tax invoice
3. GSTIN wrongly entered by the Supplier
4. GSTIN wrongly entered in the accounting / ERP Package
5. Tax invoice number wrongly entered by the Supplier
6. Tax invoice number wrongly entered in the accounting / ERP Package
7. Tax invoice date wrongly entered by the Supplier
8. Tax invoice date wrongly entered in the accounting / ERP Package
9. The supplier ships goods but they are in transit
10. Goods received but not accounted – in QC/ Bills to reach the Accounts department
11. The supplier has not entered the invoice amount correctly
12. Invoice amount wrongly entered in the accounting / ERP Package
13. The invoice amount is manually overwritten for shortages/breakages or any other reason
14. The supplier has issued the invoice but not shipped the goods
15. Invoice issued by the supplier but not received by the recipient

 

5. How is the 20% restricted input tax credit derived?

20% of the restricted input tax credit is derived basis of the total of the input tax credit available in the GSTR – 2A for the month for which return is being filed. The same is explained in the example given below

Total purchases in a month where ITC is eligible is Rs 10,00,000 & actual purchases on which tax is paid is Rs 12,00,000

Amount Reflected in GSTR – 2A s Rs 7,00,000 and amount eligible for availing input tax credit is Rs 6,00,000

What is the provisional credit which can be claimed?

20% of eligible credit i.e., Rs 6,00,000

20% of Rs 6,00,000 = Rs 1,20,000

Total amount of Credit eligible for the month = Rs 6,00,000 + Rs 1,20,000 = Rs 7,20,000

6. Is the 20% input tax credit restriction available for the sum of all the taxes or tax-wise?

As the same is notified in the Rules and the rules are different for the different taxes, it means the restriction is for each tax, i.e., for CGST, SGST, IGST & Compensation cess.

7. Do I need to consider the input tax credit on account of reverse charge, ISD, import of goods, etc. for computing the restricted input tax credit?

No, It is not required to considered for determining the restricted input tax credit.

8. Can i take the input tax credit if the supplier has not paid the taxes in the subsequent months?

If the supplier has not paid the taxes or filed the return of uploaded your invoice in the subsequent returns, then you have to reverse the input tax credit claimed on those invoices and pay interest on the same.

9. How to take the input tax credit if the supplier has filed and paid the taxes in the subsequent months?

If all the suppliers have filed and paid the taxes, then the differential amount of tax can be claimed in the month during which the supplier has filed or paid the taxes or uploaded the invoice.

10. How much input tax credit I can avail if the sum of the restricted credit and eligible credit is more than the amount showing in GSTR – 2A?

If the 20% restricted or provisional credit is more than the eligible amount, then the taxpayer has to avail on the eligible amount only. The same is explained in the example below

Total purchases in a month where ITC is eligible is Rs 1,00,000 & actual purchases during the month is Rs 15,00,000

Amount Reflected in GSTR – 2A s Rs 12,00,000 and amount eligible for availing input tax credit is Rs 90,000

What is the provisional credit which can be claimed?

20% of eligible credit i.e., Rs 12,00,000 i.e., is Rs 2,40,000

Eligible credit is only Rs 1,00,000, so the taxpayer can avail max of Rs 10,000 ( Rs 1,00,000 – Rs 10,000).

11. Are there any changes required in my accounting practices?

Yes, if the accounting practices are changed, it will give complete control and visibility for tracking the errant suppliers. The general practice is whatever are the amounts available in the ledger are considered for the return filing.  So, it is recommended to change the accounting policy also.

For this, new ledger accounts have to be created at each registration level if multiple registrations exist. The new ledgers to be created are

Sl.No	Ledgers
1	Interim / Suspense / Provisional ITC – SGST
2	Interim / Suspense / Provisional ITC – CGST
3	Interim / Suspense / Provisional ITC – IGST
4	Interim / Suspense / Provisional ITC – GST Cess

The existing accounting entry, which is passed/generated at the time of GRN/MRN creation or booking of the purchase invoice, also has to be changed. The existing accounting entry is

 

Ledgers	Debit / Credit
Inventory / Services / Expenses A/c	Dr
ITC – SGST A/c	Dr
ITC – CGST A/c	Dr
To Suppliers A/c	Cr

The new accounting entry which is to be passed or generated at the time of the creation of GRN / MRN or booking the purchase invoice should be

 

Ledgers	Debit / Credit
Inventory / Services / Expenses A/c	Dr
Interim / Suspense / Provisional ITC – SGST A/c	Dr
Interim / Suspense / Provisional ITC – CGST A/c	Dr
To Suppliers A/c	Cr

The accounting entry to be passed or generated at the time of matching is

Ledgers	Debit / Credit
ITC – SGST A/c	Dr
ITC – CGST A/c	Dr
Interim / Suspense / Provisional ITC – SGST A/c	Cr
Interim / Suspense / Provisional ITC – CGST A/c	Cr

As the revised accounting entries are at the supplier level, it will give complete visibility on the suppliers who have not filed the returns and also helps in follow up with the suppliers more effectively.

12. How should I do the reconciliation?

Reconciliation has to be carried out for each invoice and every month. The challenge is if the supplier files the GSTR Returns in the subsequent tax periods, then the same will be updated in the GSTR – 2A for the period in which the invoice is generated. The taxpayers have to check the GSTR – 2A of the previous months till the supplier files the returns or till filing of the September months return or filing of the annual return whichever is earlier. The reconciliation statement has to be maintained for each month, along with a consolidated statement.

13. Can I adopt technology to address the same?

Yes, there are a lot of tools available for the reconciliation, and also most of the ERP’s support the availing of the input tax credit on a provisional basis and availing the same only at the time of matching. If the existing accounting software or ERP provides the same, it should be implemented immediately as it will save a lot of time and effort.

14. Is it mandatory to avail the restricted input tax credit?

No, it is not mandatory to avail the restricted input tax credit; the option is given to the taxpayers to avail or not.

15. What are the other alternatives I have if I do not like to avail the restricted or provisional credit?

There are other options like while awarding the contract or purchase order to the suppliers, who are filing the GST Returns in time. The supplier’s tax filing compliance also has to be verified along with the price, quality, after supply service, along with the previous track record.

Now it clear that the matching is mandatory and also the process on how to derive the restricted 20% input tax credit. Now the taxpayers have to follow the same from the 9^th of Oct 2019, but due to interpretation issues, many of the tax professionals have concluded that it is effective for the filing of Oct 2019 returns. The taxpayers have to take a clear decision on to avail the 20% of the restricted credit along with the eligible input tax credit or avail only the eligible input tax credit after considering the following points

1. Borrowing cost for the restricted 20%
2. Cost of time and efforts required for deriving the 20% restricted credit
3. Training the respective stakeholders
4. Cost of automation – if the same is provided in their existing accounting or ERP or separate software is required.

Unless and the taxpayers do a cost-benefit analysis for availing the 20% restricted credit or not based on the above-discussed points, it would be difficult to ascertain the same. It is typically required for large corporates where they have 1000’s of purchase invoices monthly. Whatever is the decision, it will be applicable from the next month’s transactions and for filing of the returns for Oct 2019, they have to do reconciliation if the decision is not taken.

Source – https://icmai.in/upload/Taxation/TaxBulletin/Tax-Bulletin-52.pdf

Disclaimer

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 author 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.

GST TIP – 452

Time period for the recipient to communicate his acceptance or rejection of the consignment would be the validity period of the concerned e-way bill or 72 hours, whichever is earlier. In case of movement of goods on account of job-work, the registered job worker can also generate e-way bill .

GST Tip – 411

As per Section 171 of the CGST Act, any reduction in the tax rate or additional benefit of the input tax credit has to be passed to the recipient under Anti-Profiteering.

GST Tip – 381

The claim of input tax credit shall be considered as matched where the amount of input tax credit claimed in GSTR – 2 of the recipient is equal to or less than the output tax on such tax invoice or debit note in the GSTR -1 of the Supplier.

GST Tip – 379

The details of inward supplies added, corrected or deleted by the recipient in his FORM GSTR-2 shall be made available to the supplier electronically in FORM GSTR-1A through the common portal and such supplier may either accept or reject the modifications made by the recipient and FORM GSTR-1 furnished earlier by the supplier shall stand amended to the extent of modifications accepted by him.

Demystifying the reasons for mismatch between Supplier’s GSTR – 1 and Recipients GSTR – 2

It is almost 120 days after the rollout of GST and we are yet to file the first month returns, i.e., for the month of July 2017. Is technology the main culprit for this delay? The answer is “Yes” and “No.” Yes, in case of taxpayers who have a large number of invoices and becomes really tough to match the data entered and filed by the supplier and match it with the inward supplies. This is applicable in cases where the inward supplies are more than 500+ transactions per month. The answer in case of “No” is lack of understanding of the GST Law and implementation of the same. In either case, we do not have a choice but to file a valid return.

Some of the common reasons for the data mismatch are

1. Invoicing Date – the goods or services might have been billed or shipped at the fag end of the month. This could have resulted in the tax invoices not reaching the finance/accounts department.
2. Goods not yet received – this also could be one the reasons, the supplier must have shipped the goods, but the same is not yet received by the recipient on account of distance, longer travel time or breakdown of the vehicle or some reasons beyond the control of both the parties.
3. Wrong GSTIN – there could be cases where the supplier must have entered the GSTIN of the recipient wrongly. In such cases, the data will not be reflected in the actual recipient’s GST return. The date entry issues are caused as there might not be a proper accounting or ERP software with interfaces for the filing of returns, and manually data has to be entered. Manual data entry sometime lead to errors.
4. Material received but not accounted – This is one of the most common cases, in many manufacturing organizations, there is a time lag between the receipt entry or creation and accounting in finance. Personal experience shows that it will take about 20 – 45 days minimum for the Material Receipt Note (MRN) or Goods Receipt Note (GRN) to reach finance/accounts department. If this time lag is reduced, it will definitely ease the pressure on working capital requirements of the organization. It also helps the recipient to process the payments to suppliers as most of the recipients pay from the date of accounting in the books of accounts for the purchases / inward supplies.
5. Improper accounting of invoices/debit notes/credit notes – this is another major reason for the mismatch between the supplier’s and recipient’s records. Normally in our country, we account for the net amount payable to the supplier and thereby causing the mismatch. Under GST the provisions are very clear that supplier of goods or services only issues the debit note or credit note. Under GST, the recipient has to account for the full amount of the invoice issued by the supplier and then take it up for the differential amount on account of shortages/breakages / quality issues or price differential.
6. GSTR – 1 of the supplier, is not submitted – it is also observed that many of the suppliers are not aware of the process of filing of the GSTR – 1 or in some cases the erstwhile tax regime returns have not be filed, as a result they were not able to carry forward the closing balances, or C forms are pending from the customers. Some of the taxpayers are not filing the same as they have to pay the differential amount for the non-receipt of C forms or other forms. This is also causing the hardships in the GST return filing process.
7. GSTR – 1 of the supplier is not filed – as GST is a new system many of the vendors or suppliers in the MSME sector are not fully aware of the GST and process of filing of returns. As a result of this, it is observed that in some case, the supplier of goods or services has only submitted the return but not filed, this will lead to a mismatch between the records. In some cases, it is observed that the GSTR – 1 has been only submitted not filed.
8. Accounted as imprest or in IOU – it is a normal business process to have inward supplies of goods or services through imprest basis at factories or at sites. Normally they are submitted at periodic intervals to the head office or any other office, for reimbursement. Purchases from a registered taxpayer are made in one month, and the statement is submitted in the subsequent month, this also causes the mismatch between the records.
9. Software upgradation – As GST is a new tax regime and most of the accounting or ERP’s are not upgraded to carter the requirements of GST. This has also caused some issues in the initial days of data capturing and updates. In some cases, it is also observed that the upgrades have been done, but the solutions are not developed. As a result, some gaps are there.
10. Knowledge of GST – As it is a new system many of the suppliers and recipients in the MSME segment are not fully aware of the GST and its implications. There is also a lack of trained manpower on GST, and some organizations have implemented on their own with understanding issues. This also has resulted in some wrong filing and mismatch of records. Frequent changes in the new law is also causing some understanding issues, to avoid this, professional should be engaged.
11. Frequent Changes – as it is a new law and everyone is in the learning process and based on the feedback of the trade and industry there are some changes. The changes are in tax rates or process of GST or on reverse charge front etc.,
12. Not fully operations GSTN Software – the GSTN software is not operational fully and few bugs are also observed, this is also causing some issues in the filing of the GST returns.
13. Wrong data entry – as the return filing process is at the transactional level, there are understanding issues, and data is being entered wrongly in the returns, this has also resulted in a mismatch of the records. Like invoice amount being entered in the taxable amount columns or tax amounts entered wrongly at the time of filing of returns.

The above are some of the major reasons for the mismatch between the supplier’s returns and recipient’s returns. In view of the above challenges, the government is also responding and extending the due dates of filing of returns from time to time. One thing we all should keep in mind is that the for matching of the returns there is a window period of two months and not required to be matched in the same month/period of return filing.  As it is a new system, it takes time to stabilize and also for the taxpayers to understand the same. No new system is stable, and change is also difficult to adopt either for the taxpayers or for the consumers or for the tax officials. The recent experience in Malaysia where GST was rolled out on 1^st April 2015, took one year for the same to stabilize and for us, only four months have passed after the rollout. One good thing in our country is all the stakeholders are responding positively to the changes and striving for the successful implementation.

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.

GST Tip – 328

In case if the supplier of the goods or services has uploaded the invoice but not filed the GSTR – 1 return, the same will be shown in “invalid” status in the GSTR – 2A of the recipient of the goods or services or both.

GST Tip – 327

If the supplier of goods or services does not file his GSTR – 1 by the said date and the recipient of the goods or services or both have filed GSTR – 2, then the supplier of goods or services or both cannot modify the invoice, the supplier has to accept or reject the same.