Bill Trading Allegation Cannot Be Sustained on Presumption and Conjecture Alone — Madras HC Remands Where Department Failed to Verify Lorry Receipts, E-Way Bills and Toll Records

The Madras High Court has remanded a bill-trading penalty case back to the proper officer, holding that the demand cannot be confirmed based on assumptions, presumptions and conjecture, particularly when the petitioner had produced e-way bills accompanied by lorry receipts evidencing actual physical movement of goods. Justice C. Saravanan, in WP No. 14983 of 2026 (M/s Kalpatru Yarns Private Limited vs. State Tax Officer, Erode, decided 20.04.2026), directed the officer to verify whether the lorry numbers and receipts are reflected in the E-Way Bills and whether the vehicles actually passed through tolls.

The petitioner had purchased Cotton yarn from a supplier — Amarnath Mills — who had discharged tax on the supplies. The petitioner had availed ITC on the strength of these supplies. The department, relying on intelligence inputs and a supplier list maintained by the Intelligence Wing, identified the supplier as a bill trader and proposed penalty under Section 122(1)(vii) of the respective GST Enactments for receipt of goods covered by invoices without actual supply, and under Section 122(1)(ii) for outward supplies without actual receipt of goods. The petitioner's detailed reply pointing to tax invoices, matching of invoices in GSTR-2A/2B, e-way bills, and banking channel payments was brushed aside by the officer on the ground that documentary compliance alone cannot establish genuineness of supply.

The Court observed that the impugned order itself was based on presumption — it recorded that the supplier was identified as a bill trader based on intelligence inputs without independently establishing that the petitioner's specific transactions were without actual supply. Crucially, the petitioner demonstrated before the Court that seven e-invoices were accompanied by lorry receipts containing specific lorry numbers. The Court cited the Supreme Court's ruling in Rukumanand Bairoliya vs. State of Bihar (AIR 1971 SC 746) that demand cannot be confirmed based on assumptions and conjecture, and noted that it was quite possible that a supplier may have camouflaged the entire supply with different persons while making a few genuine supplies. The proper officer was directed to verify whether the lorry numbers and receipts are reflected in the E-Way Bills and whether the vehicles actually passed through tolls, and pass appropriate orders thereafter.

•  2026-juristway.com-1059-HC(Madras)-GST  |  High Court of Madras  |  WP No. 14983 of 2026  |  20.04.2026