What are the consequences of issuing an invalid tax invoice for B2B supplies?

Consequences of issuing an invalid tax invoice for B2B supplies: The imposition of penalties for e-invoicing can significantly impact the cash flows and reputation of firms that are subject to them. Adherence to the e-invoicing provisions might result in many consequences beyond penalties for not generating e-invoices. 

Currently, taxpayers who have registered and whose total value of taxable supplies or exports to businesses or the government exceeds Rs. 20 crore in any financial year from 2017-18 to 2021-22 are required to create electronic invoices.

Starting from 1 October 2022, this will apply to firms with a turnover exceeding Rs.10 crore.  

CBIC has recently expanded the implementation of e-invoicing to include enterprises with revenue above Rs 5 crore, starting from 1 August 2023. Continue reading to gain further insight into the repercussions of noncompliance.

Definition of an invalid or incorrect e-invoice

There are several reasons why an e-invoice may be deemed invalid or incorrect:

• The generated e-invoice does not comply with the standard e-invoice schema or format, or it is missing one or more obligatory fields specified in the government-notified model. 

• The e-invoice generated is a duplicate of a previous invoice for which an IRN has been generated. 

• The GSTIN of the supplier or receiver is invalid or inactive.

According to the updates on 12 April and 13 April 2023, taxpayers with a turnover of Rs.100 crore or more are required to record invoices and credit-debit notes to the Invoice Registration Portal (IRP) and issue electronic invoices within seven days from the date of the invoice, starting from 1 May 2023. Therefore, if they fail, such bills are also non-compliant. 

On 6 May 2023, the GST department extended the deadline for reporting old e-invoices on the IRP portals from 7 days to three months. Additionally, the department has not yet disclosed the new date for implementation. 

If the supplier issues an e-invoice to the recipient or utilizes it for transporting goods in such instances, it is deemed an offense. Consequently, they must face a penalty, as outlined in the subsequent section, for invalid tax invoice consequences for B2B supplies. 

What are the consequences of not issuing an e-invoice or issuing the wrong invoice? 

The requirements for e-invoices are specified in sub-rules (4), (5), and (6) of CGST Rule 48. It applies to taxpayers who meet the prescribed criteria for annual aggregate turnover and solely supply taxable goods or services.

Therefore, all other taxpayers are required to adhere to the basic standards for tax invoices. 

The e-invoice system mandates the notification of all business-to-business (B2B), business-to-government (B2G), and export supply transactions to the government. 

This is done by submitting invoices on the Invoice Registration Portal (IRP). A taxpayer can initially create an invoice or a debit or credit note using their accounting software/ERP. 

Subsequently, the individual must upload the invoice on the Invoice Registration Portal (IRP). Upon uploading the invoice, a distinct Invoice Reference Number (IRN) will be assigned to each invoice. 

Failure to generate e-invoices or issuing invalid invoices will result in the government not being notified of supply transactions. An invoice issued by the taxpayer without the Invoice Reference Number (IRN) is deemed invalid according to the GST law.   

Simply put, the invoice is considered a non-issue according to sub-rule (5) of Rule 48 of the CGST Rules. Consequently, failing to generate an e-invoice or invalid tax invoice consequences for B2B supplies results in a penalty, as outlined in the following section.

GST consequences of issuing an invalid tax invoice for supplies between distinct persons

The following are the consequences of not creating an e-invoice Reference Number (IRN) or invalid tax invoice consequences for B2B supplies in addition to the penalty for e-invoice. 

Goods in transit may be delayed if they are transported without the necessary e-way bill and e-invoice. It may result in the detention of transportation and merchandise under Section 129 of the CGST Act 2017.  

Any invoice without an Invoice Reference Number (IRN) and a signed QR code is considered invalid. This applies to all relevant cases. Consequently, if such an invoice is used for transportation, it will result in the detention of the goods and vehicles. This detention will incur the usual penalty that is stipulated for e-way bills. 

GST-registered buyers may have their invoice payments and ITC claims disallowed if they delay processing them. According to the GST rules, a tax invoice is crucial documentation for claiming the Input Tax Credit (ITC).  

Consequences Of Issuing An Invalid Tax Invoice For B2B Supplies

According to Section 16 of the CGST Act 2017, a buyer registered for GST cannot claim an Input Tax Credit (ITC) unless they have a valid tax invoice or debit note and the ITC is shown as eligible in GSTR-2B. 

If the buyer has an invoice that lacks a valid IRN and a signed QR code, they can decline the delivery of goods or withhold payment. It hampers or postpones the buyer’s ability to claim an Input Tax Credit (ITC). In the end, it harms the taxpayers’ customer/business connections. 

Without an Invoice Reference Number (IRN), the specific information of an invoice cannot be automatically filled in the GSTR-1 of the supplier. Consequently, this information may not appear in the buyer’s GSTR-2A and GSTR-2B. 

The purchaser cannot request an Input Tax Credit (ITC) if the supplier fails to remit the tax amount to the government. 

Impacts the development of e-way bills and leads to delays – There is a feature that automatically generates e-way bills together with e-invoices. The failure to generate e-invoices or the presence of inaccuracies can also impact e-way bills, resulting in disruptions to logistics and delivery delays. 

Challenges associated with rectifying electronic invoices and electronic waybills- Taxpayers are required to invest time and may encounter difficulties in correcting inaccuracies found in e-invoices and e-way bills.  

Suppose the rectification is completed within a 24-hour timeframe. In that case, they can cancel the existing invoice and issue a new one, allowing for the generation of a unique Invoice Reference Number (IRN).   

Similarly, it is possible to automatically generate a new e-way bill. However, if the correction is not made within 24 hours, it becomes necessary to issue a credit note or debit note to rectify the error, adding to the reporting workload. 

How to avoid penalties for issuing an invalid tax invoice for B2B supplies?

The failure to issue or the issuing of an invalid e-invoice that contains errors is considered a violation under the Goods and Services Tax (GST) regulations and, therefore, incurs a penalty related to e-invoicing.   

Here are the consequences of issuing an invalid tax invoice for B2B supplies, as well as the penalties for invalid e-invoice:

• The penalty for failing to generate an e-invoice is either 100% of the tax amount owed or Rs.10,000, whichever is greater, for each invoice. 

• The penalty for invalid billing is Rs.25,000 per invoice.

Here are some solutions on How to avoid penalties for issuing an invalid tax invoice for B2B supplies:

• To prevent noncompliance with e-invoicing, taxpayers should ensure their e-invoicing solution includes pre-built validations. 

• The system must have been updated to accommodate the most recent e-invoicing schema or format.  

• The system should include time limit validation to promptly notify of any possible delays in submitting bills to IRP and actively prevent them, particularly for eligible taxpayers. 

Conclusion

Invalid tax invoice consequences for supplies between two registered persons might have profound implications. Such invoices can cost the supplier and recipient financially and legally. To avoid these penalties, tax invoices must be accurate, thorough, and compatible with local tax legislation.

Without a legitimate tax invoice, input tax credits or deductions may be lost, increasing tax liabilities. Tax fines and penalties may increase the financial burden. Legal action against the parties may increase complexity and uncertainty.

FAQs

1. What defines an invalid tax invoice?

A tax invoice that does not match the legal requirements and criteria imposed by the tax authority for validity is an invalid tax invoice. This document is crucial for adhering to tax regulations and claiming input tax credits.

2. What are the potential consequences of issuing an invalid tax invoice for B2B supplies?

Issuing an invalid tax invoice can result in several consequences, including:

• The recipient is unable to collect input tax credits on the supply. 
• Sanctions, monetary penalties, or legal measures enforced by tax authorities. 
• Adverse effect on the business’s reputation and trust. 
• Increased scrutiny by tax authorities of future deals.
  

3. Can invalid tax invoice consequences for supplies between two registered persons be severe?

The consequences can be severe, mainly if the tax authorities uncover deliberate wrongdoing or repeated infractions. Penalties, fines, and legal proceedings may be initiated, and the business’s eligibility to collect input tax credits may be at risk.

4. What steps should I take if I’ve issued an invalid tax invoice?

If you send out an invalid tax invoice, you should fix the problem immediately. You should contact the recipient and send them a legal, corrected tax invoice. If your tax laws require it, you may also need to tell the tax officials about the mistake.

5. What is the penalty if the invoice is not issued or an invalid invoice for a supply?

Charges for GST under the GST Act

6. How can I avoid the GST consequences of issuing an invalid tax invoice for supplies between distinct persons in the future?

Make sure that your accounting and billing procedures are in line with the tax rules in your area so that you don’t send out invalid tax bills. This could mean teaching your employees how to use the right accounting tools and keeping up with changes to tax laws.

7. What are the precise requirements for a valid tax invoice?

While jurisdiction-specific, a valid tax invoice generally comprises the following information: 

• Name and address of the supplier
• Tax registration number
• Invoice number
• Date of invoice
• Description of products or services, quantity
• Price
• Any applicable taxes
  

Consult the tax regulations of your jurisdiction to determine the precise requirements.

8. What should I do if the tax bill I got isn’t valid?

Consider requesting a revised tax invoice from the supplier if you have received an invalid invoice. Additionally, it may be prudent to seek guidance from a tax professional or the appropriate tax authority to ascertain the most optimal course of action.

9. Can an unintended invoice error be forgiven?

Unintentional errors may be eligible for a grace period or leniency from certain tax authorities, provided they are promptly rectified. Nevertheless, this can vary significantly; therefore, it is critical to seek guidance from your local tax authority.

10. Can input tax credits be claimed on an invalid tax invoice?

In general, the answer is no. If you issue or receive an invalid tax invoice, you will not be able to claim input tax credits or deductions, which could lead to higher tax liabilities.

Aaryan Singh

B.Com degree with finance and accounting Specialisation in Goods and Service Tax (GST) and taxation system Completed certification course on GST from ICAI in 2022 Online GST practitioner course completed in 2023 from Indian Institute of Skill Development and Training.

See Full Bio