Will e-invoicing weed out fake invoices and bills even at the retail level?

The expert view is that it will be easier for the retail industry to dodge the system and evade taxes, than it will for the durables sector

Almost four years back prime minister Narendra Modi had said the 'kacha bill" and 'pakka bill' system (genuine and fake bills) in our country has helped mobilise black money. He had pinned hope on the then upcoming goods and services tax system to help put an end to this.

He had said this during a debate on the Constitution (122nd Amendment) Bill on GST in Parliament on December 9, 2016. Almost eight months down the line, GST came into existence. And now, over three years have passed since the implementation of the tax, and yet a number of shops are not issuing bills to the consumer on the pretext that such a move will raise the price of the product after adding GST.

Meanwhile, the government introduced e-invoicing this October for the business to business (B2B) transactions of companies having a turnover of at least Rs 500 crore a year. The Centre will expand it to companies with at least Rs 100 crore turnover in January and for all companies from April next year for B2B transactions. 

For business to consumer (B2C) transactions, e-invoicing will be made mandatory for companies with annual turnover of at least Rs 500 crore, effective this December.

Under B2B e-invoicing, specified firms have to raise e-invoices through a unique invoice reference portal and generate the IRN (invoice reference number). Failing this, they will not be able to move goods for B2B transactions. 

E-invoicing was to come into effect from April 1 this year, but was deferred.

Just ahead its new launch in October, companies feared disruption in their operations due to the frequent changes the government has made in the scheme, the most recent as late as September 26. 

“Frequent changes in the versions of schema, with the latest version released in July, change in validations at the portal, change in structure of JSON (Javascript Object Not­ation), are some of the issues that have made transition to e-invoicing a challenge,” Harpreet Singh, partner, KPMG, had said that time.

Schema is a structure of 28 mandatory fields that companies are required to fill. They include name of the customer, address, GST number, quantity of goods supplied, among other things. Singh said the government changed the number of fields to be validated by the portal just two weeks ago. First it said 6-8 fields were to be validated and then increased that by 3-4 fields, he had said.

As such, the Central Board of Indirect Taxes and Customs (CBIC) gave partial relief to companies from compulsory e-invoicing. It said that the companies will not attract any penalty if they move goods without e-invoicing, provided that they get invoice reference number (IRN) for such invoices within a month of the date of invoice.

The relief has been provided for the month of October only. As such, e-invoicing came into full force in November only. However, for the month of October too the number of e-invoice generation has touched 2.9 million IRNs a day.

The GST Council had approved e-invoicing to check tax evasion and arrest fraudulent claims as well as to help taxpayers through one-time reporting of invoicing details for all GST filings. It also aimed at minimising invoice mismatches during reconciliation.

But will e-invoicing help non-issuance of bills by shops and fraudulent bills or invoices?

To a query over this, an industry player said on the condition of anonymity that the answer to this question depends on the nature of industry. For instance, if it comes to medicines and some fast moving consumer goods (FMCG), retailers or chemists buy their stocks from super stockists who, in turn, buy it from distributors appointed by the companies concerned. Some distributors have annual turnover of over Rs 500 crore, but most others are in between Rs 100 crore and Rs 500 crore. They will be tracked when e-invoicing is expanded from January 1 next year. From there, authorities will know exactly which super stockists have got how much stock from distributors. Many super stockists have more than Rs 100 crore of annual turnover in large cities. From super stockists, the inventories will be pinned down to retailers. Even without B2C envoicing, retailers can be checked on whether they are giving receipts or not. Duperstockists with less than Rs 100 crore turnover will be tracked down April onwards, he said. It will not take more than three months beyond April to put the system in place to track down stocks at the retailer level, he added. 

However, in many places super stockists sell the products to stockists. It is here that problems arise, because the nature of stockists is that he will vanish after buying the product. He will never keep records of who he has supplied to. He will jot down somewhere and never gives receipts. That is why you wonder how come many retailers give products at below maximum retail price (MRP). Some doubt that these may be fake products. But most of the time, it is through tax evasion that retailers give it below MRP. Stockists could also be tracked down if authorities ask superstockists where his balance of the products has gone in between him and retailers. But it will be very difficult to pin it down to stockists. Stockists' business is mostly done by local politicians cronies. 

In the durables space, there are no super stockists. There are distributors. In many cases, companies make direct sales to large stores such as Croma, Vijay Sales, Reliance Digital. There are no intermediaries. There are some small dealers too who have a few TV sets or computers. They buy it from distributors. Unlike FMCG and pharma, the responsibility does not end with making a sale. There are installations, after-sales service, warranties, and the like. This makes distributors a key component in the chain. Pinning it down to the retail level is far easier in durables, that way. It is already happening to a great extent in the case of large stores. But it may not be happening at the dealer level. You may have noticed it as well. Suppose you visit a dealer and tell him you want to buy a TV set and it is being sold at X price at Amazon online, the dealer will give you at a lower rate. How does he give it? He is not playing on volumes like Amazon. He gives it by evading taxes. It is difficult to pin down these dealers because they frequently change their names and do not keep records, the industry player said.   

Singh of KPMG said companies that have come under e-invoicing at present do not engage in fraudulent invoices. Even after e-invoices are made compulsory for companies with at least Rs 100 crore of annual turnover from January and for all companies from April next year, it would take a few years more to detect shops not issuing bills or issuing fake bills, he said.

On whether e-invoicing for B2C transactions from December for companies with Rs 500 crore-plus turnover will be able to plug the loopholes, the industry player Business Standard spoke to said the mechanism is for facilitating digital payments rather than detecting fake bills.

For B2C transactions, companies have to fix QR code, which is to be generated by companies.

He explained loopholes can be detected at shop levels only when buyers of the companies raising e-invoices are located further.

"This will take time and it is not possible before a couple of years," he said.

M S Mani, partner at Deloitte India, said once e-invoicing is expanded to all from April next year, it would provide extensive invoice level information to the tax authorities on a real time basis, making it easier to track evasion and ITC misuse cases. 

Abhishek Jain, partner at EY India, said unless B2C e invoicing is made applicable to all, it will be difficult to pin down at the small retail level. 

Meanwhile, 30 persons including two kingpins and as many professionals have been arrested last week for allegedly

issuing fake invoices for taking input tax credit (ITC) under the GST regime. As many as 350 cases have been booked against 1180 entities in the matter.

Actual amount of fake ITC claimed is being ascertained, sources in the directorate general of gst intelligence (DGGI).

Sources said search and investigation are on to identify and apprehend the other persons who were involved in the racket and also the beneficiaries who have used the fake invoices to evade taxes and indulged in money laundering.

A source said the cases would also be investigated against the beneficiaries by the Enforcement Directorate.

It is also being ascertained whether issuers of fake invoices and beneficiaries could be booked under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act (Cofeposa).

Also, procedure for new GST registration is being tightened. The businesses whose owners or promoters do not have commensurate income tax payment records will require physical and financial verification before their companies can be given registration, sources said.