Cross-Examination Failure Renders Quasi-Judicial Proceedings Void: CESTAT (Chandigarh)

Cross-Examination Failure Renders Quasi-Judicial Proceedings Void: CESTAT (Chandigarh)

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) bench in Chandigarh has decreed that the absence of cross-examination opportunities for pivotal witnesses during quasi-judicial proceedings renders the entire process invalid.

In the case under consideration, the appellants were engaged in the production of mild steel and non-alloy steel, including ingots and various iron and steel articles. Officials from the Directorate General of Central Excise Intelligence (DGCEI) conducted a search at the appellants' factory and affiliated premises. Subsequent to the investigation, a show cause notice was issued. In the course of the follow-up proceedings, the Adjudicating Authority validated a demand alongside interest against M/s Lauls Limited. Furthermore, the authority levied an equivalent penalty under Section 11AC of the Central Excise Act, 1944, and imposed a fine of ₹10 Lakhs each on Abhay Gupta, Director of M/s Lauls Limited, and Ram Bilas Bansal, a broker, as stipulated by Rule 26 of the Central Excise Rules, 2002. In addition, the Adjudicating Authority directed the utilisation of the sum paid by M/s Lauls Limited to offset the duty liability and penalties.

The legal representatives for M/s Lauls Limited and its Director, Abhay Gupta, asserted that the demand made against the appellants was upheld primarily based on statements provided by the supplier of the goods, broker Ram Bilas Bansal, and the transporter. The counsel argued that the Adjudicating Authority breached the provisions outlined in Section 9D of the Central Excise Act, 1944, by failing to allow the appellants to conduct a cross-examination of the witnesses whose statements were pivotal in substantiating the demand.

The CESTAT panel composed of S.S. Garg (Judicial) and P. Anjani Kumar (Technical) noted that the appellants formally petitioned the Adjudicating Authority for an opportunity to conduct a cross-examination of specific witnesses, which included Ram Bilas Bansal, Abhay Gupta, and D.K. Gupta. However, the Adjudicating Authority declined the request, citing the appellants' failure to strongly emphasise the necessity of cross-examination. The Bench deemed the rationale provided by the Adjudicating Authority as unsatisfactory and underscored the mandatory nature of adhering to the provisions stipulated in Section 9D of the Central Excise Act, 1944.

The Bench referenced the ruling delivered in Andaman Timber Industries v. Commissioner of C. Ex., Kolkata-II [LQ/SC/2015/1137], wherein the Supreme Court established that if an Adjudicating Authority relies upon witness statements to formulate a decision but denies the assesses the chance to cross-examine these witnesses, it represents a significant deficiency. This omission renders the decision devoid of validity, as it contravenes the fundamental principles of natural justice and detrimentally impacts the rights of the assessee.

Hence, the Bench concluded that the failure to conduct a cross-examination of crucial witnesses substantially compromised the integrity of the proceedings. In response to the plea made by the appellants' legal representatives, the Bench concurred with their argument and recognised that the most equitable course of action would be to remand the case to the Adjudicating Authority.