What can go wrong if vendor e-invoices aren’t validated?

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08 min read.

Businesses must validate their vendor e-invoices as the GST tax officials have the Input Tax Credit (ITC) and output tax details readily available at their disposal for one-to-one tracing. For a buyer, genuine e-invoices directly impact availing of the input tax credit and filing of proper GST returns.

Reasons Why One Must Validate Vendor or Supplier e-Invoices

The legitimacy of the origin of a supplier’s e-invoice, the integrity of its content, and its legibility should be confirmed from the point of issue till the end of the retention period. The e-invoice validation process is one of the most crucial things that a company should undertake while using an e-Invoicing solution. It is because it allows both the vendor and the business to ensure that invoices cannot be modified or changed. And in case there’s a modification, the same is visible to the business or the vendor. 

A business should validate its invoice as it contains various crucial information provided by the seller. Such information is important for the correctness of books of accounts, availing input tax credit, availing discounts, timely payment of invoices, etc. A business should generally validate the following:

  • Product name and description
  • Vendor details
  • Payment terms
  • GSTIN number
  • Quantity of goods
  • Terms of supply
  • Date of supply
  • Price of each good
  • Discount

Consequences of Failure to Validate Vendor e-Invoices

Every registered buyer under Goods and Services Tax should use an e-invoice that contains a valid GSTIN and has the breakup of IGST, CGST and SGST. Hence, if any of such information required is missing in the e-invoice, the same could be considered a fake invoice. Any buyers who:

  • Avails undue input tax credit on such fake invoices     
  • Evades payment of GST using such invoices
  • Claim GST refunds with the help of such invoices

shall be liable to the consequences as listed below:

ITC wrongly claimed, GST evaded or refunded wrongfully received exceedsConsequences
Rs.5 croreImprisonment up to 5 years* + fine
Rs.2 crore – Rs.5 croreImprisonment up to 3 years* + fine
Rs.1 crore – Rs.2 croreImprisonment up to 1 years* + fine
Below Rs.1 croreMinimum 6 months* + fine

*Without any specific or special reason as recorded in the order by the court, the term of imprisonment should not be less than 6 months

The invoice which is not verified at the IRP portal is considered invalid, and input tax credit won’t be available to the business on those invoices. Hence, the consequences of non-compliance by the vendor would cost the buying organisation their input tax credit. So, businesses must check whether their vendors are compliant with e-invoicing regulations in place.

Further, an assessee who wrongly avails ITC will be liable to pay a penalty of 100% of ITC availed or Rs.10,000, whichever is higher. Also, interest at the rate of 24% will be levied on such penalty from the date of such wrongful availment of ITC till such tax liability is discharged.

Apart from the above, there could be other consequences:

Increased costs – Failure in validating the e-invoice could lead to extra effort and person-hours requiring data entry, updating of books, etc. Failure to validate and detect errors in e-invoices could also cause problems of vendor account reconciliation which might again require detailed accounting of the invoices, debits, credits, and adjustments taken.

Reduced Accounts Payable Productivity – As a result of errors in the invoice, the amount of re-work required by the payables team increases. In addition, there’s a higher volume of vendor phone calls and mail communication with the accounts payable team.

Slower processing and payment cycles – If e-invoices aren’t validated, and errors aren’t detected upfront, it could lead to a longer processing time of invoices leading to delayed payment cycles. Validation of e-invoices enables faster processing, on-time payment, avoiding late payment fees, as well as the opportunity for contractually negotiated discounts.

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