Can platforms be sued for failing to follow electronic invoicing or digital signature requirements under IT law?

As India's digital economy grows, compliance with electronic invoicing (e-invoicing) and digital signature requirements has become increasingly important for businesses, especially in the e-commerce sector. The Information Technology Act, 2000 (IT Act) and GST regulations govern these requirements, aimed at ensuring transparency, security, and tax compliance.

E-commerce businesses, particularly those operating at a large scale, must follow these regulations to avoid legal and financial repercussions. The question arises: can e-commerce platforms be sued for failing to comply with e-invoicing or digital signature laws under Indian IT law?

Key Legal Requirements for E-Invoicing and Digital Signatures

1. E-Invoicing Requirements (Under GST)

• E-invoicing has become mandatory for businesses with an annual turnover exceeding ₹10 crore under GST regulations.
• GST and E-Invoicing: The GST Council introduced e-invoicing to streamline tax compliance. E-commerce businesses must generate invoices in a structured format (JSON) and upload them to the GST portal, obtaining a unique Invoice Reference Number (IRN).
• Mandatory Compliance: Any B2B transactions exceeding the prescribed threshold must adhere to the e-invoicing system. Failure to generate proper e-invoices leads to non-compliance with GST rules.

2. Digital Signature Requirements (Under IT Act)

• A digital signature is used to authenticate electronic documents and ensure data integrity. The IT Act, 2000 makes digital signatures legally binding for electronic transactions.
• IT Act Compliance: Under the IT Act, businesses must use digital signatures for certain documents, including invoices, contracts, and tax records, to ensure legal validity. This is especially critical in the case of e-invoicing for GST.
• Signatures for GST Compliance: E-commerce businesses generating e-invoices must also ensure that these invoices are digitally signed for authenticity before submitting them to the GST portal.

Legal Liability for Non-Compliance

1. E-Invoicing Non-Compliance under GST

• Penalties for E-Invoice Violations: Under GST regulations, a penalty of up to ₹10,000 may be imposed for each invoice that fails to meet the e-invoicing requirements. This can accumulate quickly for businesses with high transaction volumes.
• Loss of Input Tax Credit (ITC): Non-compliant businesses may also face denial of ITC, which increases their tax burden and affects their overall financials.
• Tax Authority Enforcement: The GST Department can issue notices, conduct audits, and take legal action against businesses failing to comply. In extreme cases, this can lead to tax evasion charges.

2. Digital Signature Non-Compliance under the IT Act

• Legal Invalidity of Documents: Documents such as contracts, invoices, or agreements may be deemed invalid without the required digital signature.
• Disputes Over Contractual Terms: In e-commerce transactions, failure to properly sign documents may lead to disputes over the authenticity of transactions or agreements. This can lead to lawsuits for breach of contract or fraud.
• Penalties: Non-compliance with the IT Act may attract penalties, particularly if the violation involves tax documents or business transactions that affect government revenue.

Can E-Commerce Platforms Be Sued for Non-Compliance?

1. Legal Action by Tax Authorities

• Non-Compliance with E-Invoicing: If an e-commerce platform fails to issue valid e-invoices, it can face penalties and potential tax audits from the GST authorities. The platform may be subject to fines, interest on unpaid taxes, and legal proceedings.
• Digital Signature Violations: If a platform uses invalid or no digital signature where required, it may be sued for breach of contract or fraud, especially if a dispute arises over a transaction or agreement. Consumers or business partners may also file lawsuits claiming damages.

2. Civil Lawsuits for Damages

• Consumer Disputes: Consumers who suffer due to incorrect invoices, delayed payments, or issues arising from the absence of valid digital signatures can file a civil suit for damages. For example, if an e-commerce platform fails to issue an e-invoice, a business partner or consumer may claim financial loss due to improper tax calculations.
• Breach of Contract: In cases where a platform's failure to meet digital signature requirements leads to a contractual dispute, the affected party may file a lawsuit for breach of contract, seeking compensation for any financial losses incurred.

Consequences of Non-Compliance

Financial Penalties

• Non-compliance with e-invoicing or digital signature requirements can lead to severe financial penalties, including fines under both GST law and the IT Act. In the case of non-compliant e-invoicing, platforms may face penalties of up to ₹10,000 per instance, while failure to meet digital signature requirements can render transactions invalid, leading to costly legal disputes.

Business Disruption

• E-commerce platforms that fail to meet these legal requirements risk having their transactions invalidated, leading to potential delays in product shipments, disruption in sales, and loss of trust with both customers and business partners. This can have a long-term impact on the platform's operations.

Legal and Reputational Risks

• The legal risks from non-compliance extend beyond penalties. Platforms may face lawsuits, and continued non-compliance could severely damage their reputation with both consumers and regulatory authorities.

Example: Legal Case for Failure to Follow E-Invoicing Requirements

• Consider an e-commerce platform called ShopMore, which fails to implement the e-invoicing system for B2B transactions despite having a turnover exceeding ₹10 crore.
• Action by GST Authorities: After an audit, the GST Department discovers that ShopMore has not generated e-invoices or uploaded them to the GST portal for the past six months. The platform faces a penalty of ₹10,000 per invoice, and back taxes are levied on ShopMore for failing to comply with GST requirements.
• Legal Disputes: Additionally, one of ShopMore's business partners sues the platform for breach of contract, claiming that the lack of proper invoices has caused discrepancies in tax calculations and affected their own tax filings. The partner claims financial damages for this error.

Conclusion

• Yes, e-commerce platforms can be sued or face legal action for failing to comply with electronic invoicing or digital signature requirements under Indian IT law and GST regulations. Non-compliance with these laws can lead to penalties, tax audits, and civil lawsuits, which can harm the business both financially and reputationally. Therefore, businesses operating in India must ensure they follow the necessary compliance steps to avoid legal risks and maintain smooth operations in the digital landscape.