Penalty for false documents under sales tax law requires knowing falsity; mere failure to prove exemption is not enough.

Penalty under section 7A(2) of the Andhra Pradesh General Sales Tax Act, 1957 requires a finding that the dealer knowingly issued or produced a false bill, voucher, declaration, certificate or other document to support a claim of non-taxability or reduced tax. A mere inability to substantiate an exemption claim does not meet that statutory threshold. In the absence of evidence of deliberate falsity, collusion or knowing use of false documents, penalty is not justified, and the setting aside of the penalty was upheld.

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Issues: Whether penalty under section 7A(2) of the Andhra Pradesh General Sales Tax Act, 1957 could be imposed merely because the dealer failed to substantiate its claim for exemption, in the absence of a finding that it knowingly produced false bills or other false documents.

Analysis: Section 7A(2) of the Andhra Pradesh General Sales Tax Act, 1957 authorises penalty only where a dealer knowingly issues or produces a false bill, voucher, declaration, certificate or other document with a view to support a claim that a sale or purchase is not taxable or is taxable at a reduced rate. The absence of a finding that the dealer knowingly produced false documents, or that there was collusion or deliberate falsity, was material. A mere failure to prove an exemption claim does not by itself satisfy the statutory requirement for penalty.

Conclusion: Penalty under section 7A(2) was not justified, and the order setting aside the penalty was upheld.

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