2017 (11) TMI 2011 - HC - Customs

Clandestine diversion of AGU for industrial use or not - grant of personal hearing - examination/cross-examination of relevant witnesses, allowed or not - permission to petitioner to adduce further evidence - HELD THAT - Material on record suggests that the adjudicating authority referred to and relied upon the statements of various witnesses to prove the allegations against the noticees. While filing reply to the show cause notices, the petitioners applied for cross-examination of such witnesses citing reasons. The adjudicating authority did not dispose of such a request but proceeded further with the hearing of the show cause notices. In the final order of adjudication, he dealt with such a request rejecting it primarily on the grounds that the cross-examination of investigating officers of the department is not necessary. The petitioners having made confessional statements crossexamination of other witnesses would not be necessary. Even counsel for the department could not build a case that the adjudicating authority had placed no reliance on the statements of the witnesses whose cross-examination the petitioners wanted but the adjudicating denied. That being the position, it was necessary that the petitioners be allowed cross-examination of such witnesses at least on sample basis. It is not possible for us to segregate the nature of evidence on record and come to the conclusion that even in absence of the statements of these witnesses, the findings of the adjudicating authority can be salvaged. The adjudicating authority not having undertaken any such exercise it would neither be possible nor appropriate on our part to do so. The impugned orders are vitiated on the ground of cross-examination of witnesses not being allowed though applied for and that adjudicating authority relying upon the statements of such witnesses in the final order of adjudication - Only on the ground of not permitting cross-examination of the members of panel, in the opinion of the Court, did not vitiate the order of confiscation against the petitioner. Proceedings are remanded to the adjudicating authority for fresh consideration and disposal in accordance with law - petition allowed by way of remand.

Summary

Issues Involved:
1. Diversion of Agricultural Grade Urea (AGU) for industrial use.
2. Issuance of show cause notice and reliance on statements of witnesses.
3. Request for cross-examination of witnesses.
4. Adjudicating authority’s handling of the cross-examination request.
5. Alleged breach of principles of natural justice.

Detailed Analysis:

1. Diversion of Agricultural Grade Urea (AGU) for Industrial Use:
The petitioner, a trader in industrial salts and chemicals including Technical Grade Urea (TGU), was investigated for allegedly diverting AGU for industrial purposes. The petitioner denied any such diversion, asserting involvement only in AGU and not for industrial use.

2. Issuance of Show Cause Notice and Reliance on Statements of Witnesses:
The investigation led to a detailed show cause notice dated 25.5.2015, confronting the petitioner with substantial material indicating clandestine diversion. The notice included statements from co-noticees and other individuals, which were heavily relied upon to substantiate the charges. The petitioner responded with a preliminary reply, objecting to the maintainability of the notice and requesting cross-examination of the individuals whose statements were cited.

3. Request for Cross-Examination of Witnesses:
The petitioner’s reply specifically requested a speaking order allowing cross-examination of the listed individuals and a personal hearing. The adjudicating authority did not separately address this request but proceeded with the hearing and passed an order on 30.9.2016, confirming customs duty and imposing penalties. The authority later addressed the cross-examination request within the final order, deeming it unnecessary for investigating officers and co-noticees due to their confessional statements.

4. Adjudicating Authority’s Handling of the Cross-Examination Request:
The adjudicating authority’s decision not to permit cross-examination was based on the belief that investigating officers were not vital witnesses and that the confessions of co-noticees negated the need for further cross-examination. This handling was contested by the petitioner, who argued that the denial of cross-examination of vital witnesses resulted in a miscarriage of justice. The petitioner clarified that the request was for cross-examination of sample witnesses, not all.

5. Alleged Breach of Principles of Natural Justice:
The court found that the adjudicating authority relied on witness statements without granting the requested cross-examination, constituting a breach of natural justice. The petitioner’s retraction of confessional statements and the retraction by other witnesses were not adequately considered. The court emphasized that cross-examination is crucial for testing the veracity of statements and ensuring a fair hearing.

Legal Precedents Cited:
- Commissioner of Central Excise, Ahmedabad-II v. Gujarat Cypromet Ltd.
- Manek Chemicals Pvt. Ltd. v. Union of India
- Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II
- Swagat Synthetics and Others v. Union of India

These cases underscored the importance of cross-examination in adjudicatory processes and the consequences of its denial.

Conclusion:
The court held that the impugned orders were vitiated due to the denial of cross-examination, which was a serious breach of natural justice. The orders were set aside, and the proceedings were remanded to the adjudicating authority for fresh consideration. The authority was directed to grant cross-examination of witnesses on a sample basis, specifically three witnesses from each category as per the petitioner’s annexure. The remand was limited to providing cross-examination, after which a fresh order could be passed in accordance with the law. All petitions were disposed of accordingly.