This article is written by Karishma Sethia from Jindal Global Law School.
The primary objective of this article is to examine the digital initiative undertaken by the Government, in the form of an Electronic-Way Bill. Starting on 1st April 2018, the Government launched the E-way bill system for inter-state transactions. Subsequently, as of 1st June 2018, taxpayers were also required to issue an E-way bill for intra-state supplies. This paper focuses on the purpose behind such a digital step and analyses the challenges faced by the e-way bill system with special reference to case laws. Further, it concludes by emphasizing that the E-Way bill mechanism is an excellent step taken by the Government of India to facilitate transportation of goods, both inter-state and intra-state, thus fully avoiding tax evasion. If implemented properly, e-way bills would have the potential to transform the indirect taxation regime in India.
Table of Contents
Introduction
The biggest revolutionary reform in the indirect taxation sphere has been the implementation of the Goods and Service Tax (GST) regime in India. This new tax administration system hinges on the principle of one nation, one tax. It aims to unify the nation into a single market by bringing under its purview multiple indirect taxes that existed under the previous regime. One of the key objectives behind building the GST system is to keep track of the real-time reporting of transactions in order to detect cases of tax evasion and thus ensure compliance. To achieve this objective, the Government has rolled out the E-Way Bill as a deterrent to all GST evaders.
The concept of a waybill is not new, it was issued under the former VAT regime in the case of the movement of goods from one state to another. The waybill is a physical document that describes the details of the shipment of goods. Earlier, this bill was issued in compliance with the tax policies of different states, which contributed to further complications. The E-Way Bills are now electronic documents that entail the use of a common electronic portal, thereby bringing in a uniform rule that is valid throughout India.
Another major downside to the former regime was the intervention of tax inspectors in the physical investigation of goods and vehicles at each border. The vehicles would be stopped at checkpoints or in transit for verification, which would increase the delivery time and boost corruption. With the E-Way Bill in force, there is a speedy verification process through the online portal that ultimately ensures that the vehicles pass faster and are no longer subject to the whims and fancies of the inspector raj. Thus, we see how there was a need to switch to a more efficient and convenient system to facilitate hassle-free movement of goods within and across borders by abolishing check-posts across the country.
Salient features of the E-Way Bill
An E-Way Bill is mandated to be generated electronically through the portal in all cases of “movement of goods, whether inter-state or intra-state by a registered person, where the value of the consignment exceeds Rs. 50,000 or more.” Rule 138 provides that the primary responsibility to generate the bill rests with the registered person, that is, the consignor or consignee. However, in the event that the registered person fails to generate the bill, then the ancillary duty falls upon the transporter to issue the bill only after due authorization from the registered person. The system allows the registered person to generate e-way bills quickly and easily through multiple platforms, including a SMS facility, mobile application, web platform etc. It also enables the transporters to prepare a consolidated e-way bill for movement of multiple consignments in the same conveyance. Since the entire process is automated at each and every stage, there is little room for tax evasion.
The E-way bill is an effective compliance mechanism that ensures that all the relevant details with respect to the goods are uploaded before the goods are dispatched. The bill has two parts, Part A and Part B. Part A contains details of the goods being moved, the supplier, and the recipient, whereas Part B contains relevant transportation details. According to Rule 138(3), both the parts have to be mandatorily filled, for an E-way bill to be valid. Upon generation of the E-Way Bill, “a unique number (EBN) is assigned and made available to the supplier, recipient, and the transporter.” By allowing the interested parties access to a single document from anywhere, it will be impossible for anyone who wishes to hide the identity of the items being transported to manipulate the e-way bill or avoid paying taxes. It will thus assist the GST Council in achieving its goal of reducing tax evasion.
The primary rationale behind the implementation of E-way bill is to curtail revenue leakage. It has been noted that GST is prone to tax evasion, as the generation of fake invoices, non-invoicing, or under-invoicing. Due to the incorrect reporting and lack of a tracking system, the Government’s revenue collection has decreased considerably. In order to remedy this situation, the GST Council has relied on an anti-tax evasion measure, i.e., the invoice matching mechanism to boost its tax collections. The Government has integrated the GSTR-1 with the E-way bill system so that the sales reported in the GSTR-1 can be matched with the invoice details mentioned in the E-way bill.
This would make it easier for the tax authorities to ensure that the taxpayers are properly disclosing the sales details in the return form and are paying the GST on the same. In the erstwhile tax system, tax officials had to manually cross-check the waybill with the tax returns filed in order to ensure that all the consignments came within the tax net. With the auto-population facility of the E-way bill data in the GSTR-1 form of the supplier, taxpayers and officials will be free from manually uploading these details on GSTR-1, making the entire documentation process simpler. As a consequence, we see how e-way bill reinforces proper invoicing and even tries to contain tax evasion. Furthermore, companies that have defaulted on filing GST returns for two consecutive periods are barred from issuing e-way bills. This underlines the Government’s commitment to strengthen GST compliance and to bring more transparency in the reporting system.
The use of the Radio Frequency Identification Device (RFID) is another ground-breaking innovation that has changed the process of verifying and validating the authenticity of the e-way bill. It is mandatory for businesses to incorporate this device on the vehicle so that the authorities can easily detect the movement of the vehicle containing the goods covered by the E-way bill via RFID readers. It is a revolutionary change in the sense that it not only reduces the waiting time at check-posts, but also reduces the number of documents needed to be carried by a person-in-charge of the vehicle. Although this method may not completely eliminate the process of physical verification by inspectors, it will substantially restrict it, thereby avoiding the risk of harassment by inspectors. As a result, we can see how the digitization of the verification process has led to faster and smoother transit of consignment and has also provided the Government with a proper tracking mechanism, unlike the VAT system.
Rule 138(D) of the CGST Rules sets out the rules for the detention of conveyance by inspectors. It stipulates that “in case a vehicle is intercepted by an officer for more than 30 minutes, the transporter may raise a complaint by uploading the details of the detained vehicle in FORM GST EWB-04.” This facility proves that, while the inspector has the authority to intercept the conveyance and carry out the physical verification of the conveyance, the authority cannot be exercised indiscriminately for a long time. Therefore, it serves as a deterrent to unjustified abuse by the revenue officials.
The GST law provides for dangerous consequences for businesses in case the goods are transported without generating a valid E-way bill. In the event of non-generation of E-way bill, the tax authorities shall “impose a penalty of Rs. 10,000 or an amount of tax intended to be evaded, whichever is greater.”Moreover, if the goods being transported contravene the CGST Rules, 2017, the vehicle conveying such goods shall be detained by the authority until the appropriate tax penalty is paid to the officer. It is important to note that failure to comply with the mandate of the e-way bill may result in a prima facie presumption of tax evasion on the part of the consignor, thereby resulting in the confiscation of goods in transit. Since the confiscation of goods can disrupt the operations of the business, it is crucial for the consignors to be extremely cautious when generating an E-way bill to avoid any uninvited problems for themselves.
In the recent Kerala High Court Judgment, it was held that “human errors which can be detected could not be penalized.” In this case, the petitioner had mistakenly mentioned the incorrect value of goods in the e-way bill. This led to the confiscation of goods however, the tax was paid in accordance with the actual amount.
The court took a pragmatic approach in this case and held that “a minor mistake such as zero missing from the value of goods or some other typing error would not result in the goods being detained, as long as the tax has been paid on the correct amount.” Hence, the court released the goods detained after the bond had been furnished. The court also highlighted that, in the event that the tax was not paid correctly, the goods would be released only on furnishing of a bank guarantee. This case sheds light on the fact that mere procedural lapses wherein the government revenue is not impacted cannot lead to seizure of goods or imposition of penalty by officers. As a result, minor discrepancies in the details of the e-way bill are free from penalty.
Challenges
Although the E-way bill has made the taxation process a lot more transparent, it is not a full-proof system and there are deficiencies in the system that need to be addressed as a matter of urgency.
The key cause of concern is that there is no option for the modification of the e-way bill. After an e-way bill is generated, only Part B, which specifies the transport information, can be modified. Besides, Rule 138(9) specifies that “the cancellation of the bill shall take place within exactly 24 hours of generation, where there is an error and until such time as it is verified in transit by the officer.” Accordingly, in a situation where the dealer has generated an E-way bill with incorrect details, the only recourse available to the dealer is to cancel it and make a new bill.
This cancellation must be rendered within 24 hours, but in case the movement of the goods have been effectuated and the new bill has not been generated, the situation will become even more problematic if the goods are intercepted during transit. This is primarily because, in such a case, the goods in transit will differ from those referred to in the e-way bill and the officer will presume, first and foremost, that the dealer is trying to evade tax. Although the dealer does not intend to avoid tax and the error can be corrected, the inspector may fail to take this into account and penalize the dealer in cases of unintentional errors. Likewise, the High Court of Madhya Pradesh imposed a “massive penalty of Rs. 1.32 crore on the transporter for not filing transportation-related details in Part B of the E-way Bill before loading of goods.”
The court dismissed the petitioner’s contention that he was unable to fill out the details in Part B due to a technical glitch, stating that filing of Part B was mandatory and could not be regarded as a technical mistake. Additionally, it reasoned that if Part B is not updated it would raise doubts on the legitimacy of the bill. Here, we see how the court has taken a stringent approach by discouraging businesses from considering the filing of the e-way bills as a “mere procedural requirement.” In my view, this judgment sets a bad precedent because it leaves no room for consideration of procedural irregularities in the generation of e-way bills. Part B of the E-way Bill provides information relating to the transporter and the vehicle number in which the goods are being transported and has little to do with the amount of tax or the consignment in Part A. Part B is intended solely to track the movement of the goods and to ensure that the goods in the vehicle are those referred to in the e-way bill.
The fact that the petitioner carried the E-way bill with the consignment, and that the details of Part A details were properly filled, clearly indicates that the petitioner had no intention of escaping tax liability. We therefore see how the Madhya Pradesh Court has taken an approach contrary to the Allahabad Court concerning lack of proper documentation. It is submitted that, while determining the question of penalty, the courts must take a flexible approach. Imposing penalties in cases of procedural lapses where a party has not intended to escape tax liability, raises serious concerns about the real purpose behind the introduction of an e-way bill.
Since the e-way bill system itself faces many practical and technical difficulties, the GST Council must tackle this problem as a matter of urgency. It would be more realistic to incorporate a clause to rectify the e-way bill so that it could address practical business scenarios and prevent unwarranted harassment for businesses. Furthermore, the officer intercepting the vehicle should bear in mind the intention of the dealer with regard to the non-furnishing of the e-way bill or any other irregularity prior to the enforcement of a seizure order.
Another challenge is that every time the mode of transport changes, a new e-way bill is required. It highlights the unnecessary hassle that a taxable person has to face. This provision will become a major problem for e-commerce operators and courier department who resort to different modes of transport to ensure that goods reach customers. It will increase the compliance burden for these operators as they will end up generating new e-way bills frequently.
Another challenge concerns the strict timeline for the validity of e-way bills. Under Rule 138(10), the validity of the e-way bill is directly linked to the distance travelled by the vehicle. For distances of up to 100 km, the period of validity shall be 1 day and for each additional distance of 100 km, the period of validity shall be extended by 1 day. While there is a possibility of extending the validity of the e-way bill, the same can only be done under extraordinary circumstances. Given India’s deficient and offline transportation industry, this timeline expectations appear to be rather unrealistic. Another issue related to this is the lack of internet access and low e-literacy awareness among business enterprises. Since the e-way bill is a fully online system, small transporters, consignors, and consignees may not have the necessary IT infrastructure to generate e-way bills on the portal. Expecting the transporters from the unorganized sector to be comfortable with an online portal, without making any delays or mistakes is rather ambitious. Thus, this may result in a huge downside to the success of the e-way bill in India.
It is therefore critical for the GST Council to take the necessary steps to eliminate these shortcomings so that the e-way bill can reach its full potential.
Amendments to the E-Way Bill
The GST Council has recently introduced a host of changes to the e-way bill system to discourage malpractices. One of the features of the new system is “the automated distance calculation for movement of goods based on the postal pin code of the supplier and the recipient. The user can enter the actual distance as per the movement of goods but not more than 10% of the displayed distance.”The object of this reform is to ensure that the taxpayers under the composition scheme do not enter into inter-state transactions. Although the Government is trying to make the system robust, it must be ensured that there is some leeway given in exceptional cases where transporters have taken a detour due to unforeseen circumstances, like road blockage, etc. Additionally, the new rules prohibit the generation of multiple e-way bills based on the same invoice number by any party, that is, consignor, consignee, or transporter.
Therefore, if one invoice number has been entered to generate an e-way bill, that same invoice number cannot be used to generate additional e-way bills. As a result, one invoice one e-way bill scheme has been introduced to prevent misrepresentations by suppliers trying to escape tax liability. This could prove to be problematic in a situation where the goods are in transit and the conveyance breaks down or is delayed, resulting in a high chance of the e-way bill getting expired. It poses significant challenges for the transporter, as no other e-way bill can be generated with the same invoice details. Another feature introduced is the extension of the e-way bill when the goods are in transit, i.e., when it is on the road or in the warehouse. Furthermore, the e-way bill system enables the taxable person to check the e-way bills that are due to expire within 4 days. This is a positive reform, as it will make it easier for taxpayers to ensure that the goods reach their destination before the e-way bill lapses. The reforms, as mentioned above, are another example of how the Government relies on technology to make tax evasion extremely difficult for taxpayers. With these reforms in line, there will be a positive change in the e-way bill framework.
Has E-Way Bill achieved the agenda of one nation-one tax
Given that there is a standardised e-way bill throughout the entire country, we can safely claim that the E-way bill has integrated India into a common market by effectively dissolving all barriers across states. This system has unified India by introducing a common network for e-way bills and ensuring that all transactions go through a single portal, irrespective of where the transaction takes place, thereby upholding the motto of one nation one tax. By doing so, a uniform tax has been enforced across the country, encouraging an easy flow of goods, and improving the ease of doing business. In the previous regime, this was a logistical nightmare.
Nevertheless, one important point to note is that certain States have adopted parallel rules and regulations for intra-state transactions that are contradictory to the notion of one nation and one tax. For example, “Mizoram has lowered the threshold limit from Rs. 50,000 to Rs. 10,000. On the other hand, some Sates, such as Madhya Pradesh and Goa have declared that e-way bills for intra-state transactions must be issued only in the case of certain specified goods.”This illustrates how the non-uniformity of the e-way bill rules can attack the notion of “one nation one tax”. One may argue that different thresholds for different states may distort the essence of uniform tax regime, however this argument may not be very solid.
The different threshold limit or e-way bill rules for States may be justified on the ground that not all States have progressed similarly on the economic front, and thus the same standard rule cannot apply to those states. For example, a trader in a hilly state like Mizoram, will have a very small turnover than the one in Calcutta or Mumbai. Of course, these divergent tax policies would ultimately complicate the tax system, but what has to be known is that these States have come up with their own rules to protect their economy. Furthermore, providing different relaxations in no way hinders the uniform system, that is, the inter-trade transactions. These rules are only limited to the intra-state transactions, and States still have to abide by the prescribed uniform e-way bill rule for inter-trade transactions, irrespective of their State-specific exemptions. We may then claim that from a panoramic landscape view, the E-way Bill tries to achieve uniformity through its inter-state transactions, however, when we dig deeper, the uniformity is diluted only in the case of intra-state transactions.
In the light of the foregoing, it is crucial for the Government to allow States to exercise discretion only under exceptional conditions so that the uniformity of this new tax regime is maintained and the primary objective of GST, that is, One Nation One Tax is not defeated.
Conclusion
Despite the glitches, the Government has made a significant improvement over the previous fragmented structure, by implementing the unified e-way bill system. This system will lay the foundation for the success of GST and would result in a smooth transition of goods across all the States. To ensure that the e-way bill initiative is truly successful, it is important for the businesses to comply diligently with the requirements of the e-way bill and to generate one when necessary.
LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:
