Non-Compliance of E-Invoicing by your Suppliers - Risk to Your ITC Claim

 

On May 10th, 2023, the Indian government issued Notification No. 10/2023 – Central Tax, announcing a significant reduction in the threshold limit for E-Invoicing. Effective from August 1st, 2023, the threshold limit for E-Invoicing has been lowered from Rs 10 Crores to Rs 5 Crores. As a result, any person with a turnover exceeding Rs 5 Crores during any financial year commencing from 2017-18 is now required to generate invoices electronically.

However, the present economic scenario suggests an increased likelihood of many suppliers surpassing the threshold failing to comply with E-Invoicing requirements due to a lack of knowledge or other reasons. It is important to note that Rule 48 of the GST Rules of 2017 stipulates the manner in which a Tax Invoice should be issued. Sub Rules (4) and (5) of Rule 48 state that if E-Invoicing is applicable but not adhered to, the invoice in question shall not be considered as a valid invoice.

In accordance with the provisions of Section 16, among other conditions, it is imperative that the claimant possesses a tax invoice to claim Input Tax Credit (ITC). A combined interpretation of these two provisions of the law suggests that in cases where the supplier is required to issue an e-invoice but instead issues a regular tax invoice, the latter will not be considered a valid invoice. As a result, tax authorities may potentially deny the claim upon assessment.

It is essential that suppliers comply with the provisions of the law to safeguard the entitlement to claim Input Tax Credit. The burden of non-compliance may fall on the recipient of goods and services, leading to increased costs and administrative hassles. It is therefore advisable that businesses take necessary measures to ensure that their suppliers are aware of the new threshold limits and comply with E-Invoicing requirements to avoid any potential disruptions in their operations.