2025 (1) TMI 1422 - HC - GST

Challenge to communication refusing to grant an opportunity FOR cross examination of persons whose statements were allegedly utilised by the officer while issuing Ext.P1 SCN - HELD THAT - In a recent judgment of this Court in NISHAD K.U. PROP. M/S. WOODTUNES ENTERPRISES VERSUS THE JOINT COMMISSIONER CENTRAL TAX AND CENTRAL EXCISE CGST KOCHI COMMISSIONERATE KOCHI THE ADDITIONAL DIRECTOR DGGI KOCHI ZONAL UNIT CENTRAL BOARD OF INDIRECT TAXES CUSTOMS UNION OF INDIA. 2025 (1) TMI 980 - KERALA HIGH COURT it was observed that the basic requirement of the rule of law is to grant an opportunity of hearing to the persons against whom proceedings have been initiated. When statements of third parties are relied upon it is one of the fundamental requirements that the party against whom such statements have been relied upon is granted an opportunity to question the person who gave such statements. This requirement flows from the opportunity of hearing required to be given as per Section 75(4) of the CGST Act. This Court had further observed that unilateral statements behind the back of a person cannot under any circumstances be justified under the rule of law even if the proceedings are quasi judicial in nature. In the instant case it is evident that statements of two persons have been used by the respondent to issue show cause notice. Thus when those statements were proposed to be used against the petitioner it is a fundamental requirement to grant an opportunity for cross examination. The request of the petitioner as seen from Ext.P2 communication ought to have been allowed by the respondent. Therefore declining to grant permission to cross-examine as per Ext.P3 is a contravention of the principles of natural justice which flows from the opportunity of hearing required to be granted under Section 75(4) of the CGST Act - Ext.P3 is to be set aside and the petitioner be granted an opportunity to cross-examine those persons whose statements are referred to in the show cause notice while continuing the proceedings initiated pursuant to Ext.P1. Conclusion - The refusal to permit cross-examination contravened the principles of natural justice and the statutory requirement for a fair hearing. Therefore the decision communicated in Ext.P3 was set aside and the petitioner was granted the right to cross-examine the individuals whose statements were used in the show cause notice. Petition allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is whether the refusal to grant the petitioner an opportunity to cross-examine individuals whose statements were used in issuing a show cause notice violates the principles of natural justice as required under Section 75(4) of the Central Goods and Services Tax (CGST) Act, 2017.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The legal framework centers around the principles of natural justice, specifically the right to a fair hearing, as encapsulated in Section 75(4) of the CGST Act, 2017. This section mandates that an opportunity of hearing must be provided to any person against whom proceedings are initiated. The court referenced a recent judgment in Nishad K.U. v. The Joint Commissioner, Central Tax and Central Excise and Ors., which underscored the necessity of allowing cross-examination when third-party statements are relied upon in quasi-judicial proceedings.

Court's interpretation and reasoning:

The Court interpreted the refusal to allow cross-examination as a breach of the principles of natural justice. The reasoning was based on the premise that when third-party statements are used in proceedings, the affected party must be given a chance to question the veracity of those statements. This opportunity is integral to ensuring a fair hearing and upholding the rule of law.

Key evidence and findings:

The key evidence in this case was the statements obtained from two individuals, Mr. Abdul Salam K and Mr. Shajahan K.T., which were used to issue the show cause notice to the petitioner. The petitioner's request to cross-examine these individuals was denied on the grounds that the statements were obtained without coercion or undue influence, as per the respondent's communication.

Application of law to facts:

The Court applied the principles of natural justice to the facts by determining that the denial of cross-examination was unjustified. The reliance on third-party statements without providing an opportunity for cross-examination was deemed a violation of the petitioner's right to a fair hearing under Section 75(4) of the CGST Act.

Treatment of competing arguments:

The respondent argued that the statements were obtained without coercion, suggesting that cross-examination was unnecessary. However, the Court dismissed this argument, emphasizing that the absence of coercion does not negate the necessity for cross-examination when such statements are instrumental in the proceedings against a party.

Conclusions:

The Court concluded that the refusal to permit cross-examination contravened the principles of natural justice and the statutory requirement for a fair hearing. Therefore, the decision communicated in Ext.P3 was set aside, and the petitioner was granted the right to cross-examine the individuals whose statements were used in the show cause notice.

SIGNIFICANT HOLDINGS

The Court held that the principles of natural justice require that when third-party statements are relied upon in proceedings, the affected party must be granted an opportunity to cross-examine those individuals. This requirement is rooted in the fundamental right to a fair hearing as per Section 75(4) of the CGST Act. The Court stated, "Unilateral statements behind the back of a person cannot under any circumstances be justified under the rule of law, even if the proceedings are quasi-judicial in nature."

The final determination was to set aside Ext.P3, thereby mandating that the petitioner be allowed to cross-examine the individuals in question, ensuring the proceedings adhere to the principles of natural justice and are concluded without undue delay.