Andhra Pradesh High Court Upholds 200% VAT Penalty On Trader For Bogus Bill Trading

The Andhra Pradesh High Court has upheld a penalty equal to 200% of the tax imposed on an iron and steel trader for issuing false tax invoices without actual movement of goods to facilitate wrongful availment of input tax credit.

A Division Bench of Justice R. Raghunandan Rao and Justice T.C.D. Sekhar dismissed a writ petition challenging a penalty of Rs 50.52 lakh levied under Section 55(2) of the Andhra Pradesh Value Added Tax Act, 2005, for the period from June 2014 to June 2016.

The petitioner was a registered dealer engaged in the purchase and sale of iron and steel. The tax department accused the trader of bill trading by issuing fake and false tax invoices and waybills. These invoices were used by purchasers to claim input tax credit, even though no goods had actually moved.

The assessing authority found that out of 54 sale transactions shown by the trader, only 32 were supported by verifiable waybills on the VAT Information System. The remaining transactions were treated as bogus due to the absence of evidence showing physical movement of goods.

Subsequently, a penalty that aggregates to nearly 200% of the alleged bogus transaction was imposed on the trader on August 27, 2020. This was later confirmed by the appellate authority on April 27, 2023.

The trader then approached the High Court. Having already paid Rs 7.31 lakh, he sought a stay on recovery of the balance disputed penalty of about Rs 43 lakh.

Opposing the plea, the tax department relied on tollgate data, waybill mismatches, and cross-verification reports from territorial officers. It was pointed out that the same lorry was shown as transporting goods for another firm at 5.11 pm and again as carrying the petitioner's goods at 6.09 pm. The distance between Polavaram and Visakhapatnam is about 245 km, making such movement within 58 minutes impossible.

After examining the record, the High Court found clear evidence of bogus trading. The Court noted that cross-verification reports from territorial authorities showed that several transactions were not genuine.

The bench observed that the petitioner failed to offer any explanation for the implausible movement of the lorry. In the absence of any such explanation, the court rejected the contention that the authorities had failed to verify the sellers' returns.

Finding no illegality in the proceedings, the High Court dismissed the writ petition and upheld both the penalty order and its confirmation by the appellate authority

Case Detail: Leela Sai Ram Trading vs. The State of Andhra Pradesh

Citation: 2026 LLBiz HC (APH) 9

For Petitioner: Advocate Narasimha Rao Gudiseva

For Respondent: Government Pleader for Commercial Tax