We present investigations of N-2/H-2/CH4 based chemically assisted ion beam etching (CAIBE) process for InP/GaInAsP. The novelty lies in using nitrogen as the inert ion species in the etch chemistry. The etch induced damage was evaluated by photoluminescence (PL) using near surface quantum wells as probes, and by roughness measurements by atomic force microscopy (AFM). The 75 eV N-2/H-2/CH4, CAIBE process is shown to result in extremely smooth surfaces and low optical damage. Upon annealing in PH3, enhancement in PL intensity is observed for samples with smooth surface morphology (rms < 1 nm) and degradation for rougher samples. The degradation is attributed to migration of surface disorder. Addition of AsH3 during annealing forms island-like structures. Their size and density are shown to depend on the surface morphology as-etched.