October 12, 2017
GSTN’s failure to handle the flood of GST return filings raises serious doubts about the success of the e-way bill system for SMEs
For small and medium sized enterprises (SMEs), the recent decision to defer the implementation of e-way bills may just be the calm before the storm.
The GST Council on 6 October decided that the e-way bill system shall be introduced in a staggered manner with effect from January 2018 and shall be rolled out nationwide effective April 2018. Once implemented, movement of goods worth more than Rs50,000 within or outside a state will require securing an e-way bill by prior online registration of the consignment.
To generate an e-way bill, the supplier and transporter will have to upload details on the GSTN (Goods and Services Tax Network) portal. Once an e-way bill has been generated, a unique e-way bill number (EBN) shall be made available to the supplier, the recipient and the transporter on the common portal.
The aim is to eliminate state-wise documentation, ensure faster transit of goods by reducing the number of check-posts across the country, and curb corruption.
However, GSTN’s failure to handle the flood of return filing invoices raises serious doubts about the success of the e-way bill system since it is completely automated.
Some tax experts foresee another IT debacle, especially for SMEs.
“If the government wants to implement it, then a key pre-requisite will be to put E-way bill IT infrastructure in place and test it beforehand. Failing which, a situation like that of GSTN may arise, and that would add to woes of smaller companies which may not be technologically equipped. E-way bill mechanism adds a layer of compliance and if implemented without IT preparedness, then defeats the purpose of GST, which is to boost ease of doing business in India,” Abhishek Jain, partner, EY said.
As for rules, an EBN will be valid for one day for a 100km journey and one day each for each additional 100km. Validity is based on the distance travelled by the goods and is calculated from the date and time of generation of e-way bill. Some find this a hindrance making transport of goods within the city difficult.
“It is a real-time system with validity of the bill decided beforehand for a particular transaction. This could, in fact, add to transit time for smaller quantities of goods within a city. Larger players like us would manage to incur the cost, but for smaller entities, it is a huge challenge,” said Sunil Shankar, business head, LED panels and AC, Mirc Electronics Ltd.
Also, installation of a radio frequency identification device in transporter’s vehicle to map the soft copy of an e-way bill is an additional cost. Some see scope for it being misused by taxmen, who can interrupt journeys to verify the e-way bill and even physically verify the consignment.
“E-way bill implementation would give a state government free hand to harass companies, particularly in cases where the E-way bill validity may have expired due to failure of the system or change in destination,” Sunu Mathew, managing director of LEAP India said. LEAP India is a Mumbai-based supply chain solutions company and its clients include Mondelez, Coca-Cola, Flipkart, LG, Amul and Toyota.
Concerned over these issues, Anita Rastogi, indirect tax partner at PwC India, suggests that e-way bills should be scrapped. “In the pre-GST era, value added tax (VAT) rates differed from state to state, so there were cases when companies would transport goods from higher VAT to lower VAT states, but now with GST fixed on each product, that VAT arbitrage has gone. E-way bill is an outdated concept; it is like moving one step backward to the License Raj,” she said.
Meanwhile, finance minister Arun Jaitley last week said that e-way bill software has been made functional in Karnataka on a pilot basis and the experience has been pleasant.
E-way bills would aid in formalizing India’s logistics ecosystem and reduce road freight pricing. But implementation without sufficient IT preparedness will be nothing less than a nightmare. For SMEs, who have just got relief from the tedious monthly filing of GST returns, it could be a case of out of the frying pan into the fire.