Evidentiary Value of Panchnamas, Requirement of Local Panch Witnesses, and Right of Cross-Examination under Section 100(4) CrPC

Introduction

The evidentiary value of a Panchnama has consistently occupied a central position in statutes such as customs, excise, GST, IT, PMLA, NDPS etc as well as under criminal jurisprudence. Where the foundation of a demand, confiscation, subsequent recovery or prosecution proceedings rests substantially upon a search and seizure operation, the legality and credibility of the Panchnama become decisive. The issue assumes even greater significance where the Panch witnesses are not inhabitants of the locality, are not even examined by quasi judicial authorities or Courts, and may even remain unavailable for cross-examination despite repeated summons.

The issue relating to the evidentiary value of Panchnamas, requirement of local Panch witnesses, and the right of cross-examination has recently been examined in detail by the CESTAT, New Delhi in the case of Shri Natwar Lal Sharda Versus Additional Director of General (Adjudication), New Delhi And The Commissioner, CGST & Central Excise, Raipur Versus Shri Natwar Lal Sharda - 2026 (4) TMI 427 - CESTAT NEW DELHI. The Tribunal extensively analysed the scope of Section 18 of the Central Excise Act read with Section 100(4) of the Code of Criminal Procedure and examined whether Panchnamas could be relied upon where the Panch witnesses were from places situated more than 300 kilometres away, were not examined by the department, and failed to appear for cross-examination despite repeated summons. The Tribunal raised serious questions regarding non compliance with Section 18 of the Central Excise Act read with Section 100(4) of the Code of Criminal Procedure, the evidentiary worth of Panchnamas prepared in violation of statutory safeguards, and the consequences of denial of cross-examination of Panch witnesses. The demand of duty amounting to Rs. 477 Crores has ultimately been set aside by the CESTAT owing to failure of the revenue authorities to adhere to clear statutory mandates and because of a loosely conducted investigation. The case demonstrates how serious procedural infirmities can result in substantial loss of revenue and collapse of otherwise significant proceedings.

This article analyses the statutory framework, the rival contentions, and the judicial precedents governing:

1. Requirement of independent and respectable local Panch witnesses;
2. Whether Section 100(4) CrPC is mandatory or directory;
3. Consequences of failure to examine Panch witnesses and impact of denial of cross-examination;
4. Whether corroborative evidence can cure defective Panchnamas; and
5. The broader implications for adjudication under indirect tax laws.

Statutory Framework

Section 18 of the Central Excise Act mandates that all searches and arrests under the Act must be conducted in accordance with the provisions of the Code of Criminal Procedure relating to searches and arrests.

The provision reads:

'Section 18. Searches and arrests how to be made.-

All searches made under this Act or any rules made thereunder and all arrests made under this Act shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1898 (5 of 1898), relating respectively to searches and arrests made under that Code.'

Thus, compliance with procedural safeguards under the CrPC is statutorily incorporated into excise investigations. Several other special statutes incorporate or adopt the safeguards contained in Section 100 CrPC, either expressly or by reference, recognizing the importance of transparency and fairness in search and seizure proceedings. The requirement of associating independent witnesses during searches is therefore not confined to ordinary criminal law but extends across fiscal and penal statutes involving coercive investigative powers.

Illustrative list of Statutes incorporating or adopting Section 100 CrPC

Central Excise Act, 1944 - Section 18

Section 18 expressly provides that all searches and arrests under the Act shall be carried out in accordance with the provisions of the Code of Criminal Procedure relating to searches and arrests.

Customs Act, 1962 - Section 105(2)

Searches under the Customs Act are required to be conducted, as far as may be, in accordance with the provisions of the CrPC relating to searches.

CGST Act, 2017 - Section 67(10)

Section 67(10) specifically states that the provisions of the Code of Criminal Procedure relating to search and seizure shall apply, so far as may be, to searches and seizures under the GST law.

NDPS Act, 1985 - Section 51

Section 51 provides that the provisions of the CrPC shall apply, insofar as they are not inconsistent with the NDPS Act, to warrants, arrests, searches, and seizures under the Act.

Prevention of Money Laundering Act, 2002 (PMLA) - Section 65

Section 65 incorporates CrPC provisions to the extent they are not inconsistent with the PMLA in matters relating to search, seizure, attachment, arrest, confiscation, investigation, and prosecution.

Income Tax Act, 1961 - Section 132

The provisions of the Code of Criminal Procedure, 1973, relating to searches and seizure shall apply, so far as may be, to searches and seizure under sub-section (1) or sub-section (1A).

Section 100(4) of the Code of Criminal Procedure

Section 100(4) CrPC provides:

'Section 100 of Cr.PC, 1973 states that :

***(4) Before making a search under this chapter, the officer or other person about to make it shall call upon two or more independent and respectable inhabitants of the locality in which the place to be searched is situate or of any other locality if no such inhabitant of the said locality is available or is willing to be a witness to the search, to attend and witness the search and may issue an order in writing to them or any of them to do so

(8) Any person who, without reasonable cause, refuses or neglects to attend and witness a search under this section, when called upon to do so by an order in writing delivered or tendered to him, shall be deemed to have committed an offence under section 187 of the Indian Penal Code'

The provision embodies two important safeguards:

1. Search proceedings should ordinarily be witnessed by independent and respectable inhabitants of the locality; and
2. Witnesses from another locality may be called only if local witnesses are unavailable or unwilling.

A joint reading of both the provisions shows that the searches to be conducted at a particular place require witnesses from the inhabitants of that locality. It is only if no such inhabitant of the locality is available or is willing to be a witness in the search, another witness, as available may be invited to witness the proceedings. The legislative purpose is obvious - ensuring transparency, fairness, credibility, and protection against arbitrary or fabricated searches. The object of this provision is to ensure that searches are conducted fairly and squarely and that there is no 'planting' of articles/narratives.

Factual Matrix of case of Shri Natwar Lal Sharda Versus Additional Director of General (Adjudication), New Delhi And The Commissioner, CGST & Central Excise, Raipur Versus Shri Natwar Lal Sharda - 2026 (4) TMI 427 - CESTAT NEW DELHI.

The Panchnamas were allegedly drawn at a factory situated in Village Balenga, District Bastar. However:

• One Panch witness belonged to Raipur, approximately 300 kilometres away;
• The second Panch witness belonged to Visakhapatnam, more than 300 kilometres away;
• The Panchnamas did not record that local witnesses were unavailable or unwilling;
• No reasons were recorded for associating witnesses from distant places;
• The Panch witnesses were not even examined by the department;
• Despite repeated summons, the Panch witnesses failed to appear for cross-examination.

The appellant therefore contended that the Panchnamas were unreliable, legally defective, and liable to be excluded from consideration.

Importance of Panch Witnesses in Search Proceedings

A Panchnama is not merely a procedural formality. It is a contemporaneous record prepared during search and seizure proceedings and often constitutes the very foundation of the department's case. The credibility of the Panchnama depends substantially upon:

• Independence of witnesses;
• Transparency of search;
• Compliance with statutory safeguards; and
• Availability of witnesses for examination and cross-examination.

Where the Panch witnesses are strangers to the locality, unavailable for examination or cross-examination, or not examined at all, the reliability of the Panchnama becomes seriously doubtful.

Requirement of Local Witnesses under Section 100(4) CrPC

Meaning of 'Locality'

The Tribunal observed that 'locality' means the vicinity, neighbourhood, or community surrounding the place searched. The two Panch witnesses in the instant case were admittedly residents of Raipur and Visakhapatnam, both situated over 300 kilometres away from searched premises. The Panchnama did not record:

• Any attempt to secure local witnesses;
• Non-availability of local inhabitants;
• Refusal by local persons to participate; or
• Any exceptional circumstances necessitating use of distant witnesses.

Consequently, the search was held to be inconsistent with Section 100(4) CrPC.

Judicial Precedents Supporting Strict Compliance

1. Pradeep Narayan Madgonkar and Ors. Versus State of Maharashtra - 1995 (5) TMI 289 - Supreme Court

The Supreme Court in Pradeep Narayan emphasized that courts expect compliance with Section 100(4) CrPC 'to the extent possible.'The Court questioned:

• Why witnesses from outside the locality were present;
• Whether serious attempts were made to secure local witnesses; and
• Whether the prosecution established non-availability of local respectable inhabitants.

The Court observed that no serious attempt was made to associate local witnesses and that the prosecution never claimed local witnesses were unavailable. The judgment reinforces that deviation from Section 100(4) requires justification. The judgment scrutinizes the compliance with Section 100(4) of the Cr.P.C., which mandates the presence of independent and respectable inhabitants of the locality during a search. The court questions whether Panch Witnesses meet these criteria, noting that they were not from the locality where the search was conducted.

The court found it suspicious that the department did not make a serious attempt to involve local independent witnesses before conducting the search.
The court examined the testimonies of PW and found significant discrepancies. PW admitted to having acted as a panch witness in previous department raids and was found by the Court to be 'available' and 'amenable' to the department. Another PW admitted to providing a fake address to the police and had a history of gambling. The court concludes that both witnesses' explanations for their presence at the scene were inconsistent and unconvincing, rendering their testimonies unreliable. The court also notes that the police officers did not join any independent witnesses from the locality, further questioning the integrity of the operation.

2. Yeduru Sreenivasulu Reddy Versus The State of Andhra Pradesh - 2001 (11) TMI 1047 - ANDHRA PRADESH HIGH COURT

The Court held that where the petitioner's vehicle was intercepted on a busy road surrounded by commercial establishments and a cinema theatre, the investigating officers were required to comply with Section 100(4) CrPC by calling independent local witnesses and, if persons refused to participate, issuing a written order directing them to do so. Since the prosecution witnesses themselves admitted that even the Village Administrative Officer resided nearby, the failure to issue any written order or properly comply with the statutory procedure rendered the explanation regarding non-availability of Panch witnesses unreliable. Court therefore held that the entire search conducted by the prosecution is vitiated, being without jurisdiction.

3. Meenu Paper Mills Pvt Ltd, Manish Kapoor Director Of, Shri Suresh Kumar Garg, Shri Rakesh Kumar Agarwal (proprietor) Versus C.C.E. & S.T. -Meerut-I (In All Appeals) - 2019 (4) TMI 1680 - CESTAT ALLAHABAD

The appellants argued that the searches and seizures were not conducted in accordance with the Central Excise Act and the Code of Criminal Procedure (CrPC). They highlighted that witnesses to the searches were not local inhabitants as required by Section 100 of CrPC. The same witnesses were repeatedly used in different searches, which raised doubts about the fairness and legality of the searches. The Tribunal agreed that the repeated use of the same witnesses violated the legal requirements and cast serious doubts on the searches' integrity.

Whether Section 100(4) CrPC is Mandatory or Directory

The department argued that Section 100(4) is merely directory and not mandatory. Reliance was placed upon cases such as State of Punjab v. Balbir Singh; Appabhai v. State of Gujarat; and Anwar Ali v. State of Himachal Pradesh. The argument was that non-availability of local witnesses does not automatically invalidate search proceedings. While courts have indeed held that Section 100(4) may not always be mandatory in the strict sense, the crucial distinction lies in whether:

1. The Panchnama records reasons for non-compliance of statute;
2. Witnesses are examined;
3. Cross-examination is permitted; and
4. Prejudice has been caused.

Unfortunately, in most of the cases, none of these safeguards exist. Neither Panchnama records reasons for non compliance of Section 100 of CrPC nor are the testimonies of Panch Witnesses subjected to rigors of examination and cross examination. Resultantly, both admissibility and relevancy of such Panchnama to fix serious liabilities on tax payers remains questionable.

It must be noted that case laws cited by revenue stand distinguished on facts and law since most of them are not related to search and seizure cases ; Panchnama was not in issue therein; and Section 100(4) CrPC was not under consideration. Many relied upon citations don't deal with Non-examination of Panch witnesses; denial of cross-examination; or use of distant witnesses without recoding of any reasons. Certain observations or obiters regarding reluctance of public witnesses in criminal or quasi criminal tax cases could not dilute statutory safeguards applicable to searches having serious penal consequences. Officers are not expected to violate statutory provisions with impunity and insist on taxpayers to prove as to what prejudice has been caused to them due to such violations.

Right of Cross-Examination and Principles of Natural Justice

Cross-examination is one of the most valuable rights available to a noticee in adjudication proceedings. It serves multiple purposes such as testing credibility of witness and facts narrated in Panchnama; exposing contradictions; verifying authenticity of documents; challenging voluntariness; and establishing procedural irregularities. Where the Panchnama forms the very basis of the case, denial of cross-examination strikes at the root of natural justice. The Supreme Court in Arya Bhushan Bhandar held that non-production of Panch witnesses for cross-examination constitutes a clear breach of natural justice.The Court rejected the argument that no prejudice was caused. The significance of the judgment lies in the principle that prejudice is inherent where crucial witnesses are withheld from cross-examination. The Allahabad High Court in Kamlesh Gupta made an important distinction. Cross-examination of Panch witnesses is not merely for 'affirming' the Panchnama but for establishing its genuineness. The Court observed that confirmations obtained behind the back of the appellant cannot substitute lawful cross-examination. The judgment reinforces that procedural fairness cannot be replaced by one sided departmental assertions and narratives. The Bombay High Court in Kisan Ratan Singh expressed serious doubt where Panch witnesses from a locality situated several kilometres away were associated in the search. The Court questioned:

• How such Panchas reached the premises;
• Why they were chosen; and
• Why they were not examined.

The Court's observations highlight judicial skepticism towards stereotyped or 'stock' Panch witnesses.

In the present case adjudicated by CESTAT Delhi, the Panch witnesses were never examined by the department; revenue failed to secure their presence before adjudicating authorities; the appellant was denied effective cross-examination of Panch witnesses. The Tribunal observed that although the Panchas appeared for the department during search proceedings, they failed to appear later for examination /cross-examination. This circumstance raised a serious doubt regarding the reliability of the Panchnamas. The Tribunal held that the department could not rely upon the Panchnamas without first proving them through examination of Panch witnesses.

Whether Corroborative Evidence Can Cure Defective Panchnamas

The department argued that the genuineness of the Panchnamas could be established through corroborative evidence. However, the Tribunal rejected this contention because:

1. The Panchnamas constituted the foundation of the case;
2. The alleged clandestine manufacture itself originated from the Panchnamas;
3. The Panchnamas were found unreliable;
4. The Panch witnesses were not examined.

The Tribunal relied upon Mukesh Industries Ltd., where it was held that 'What falls in part, cannot be upheld in whole.' If the foundation itself collapses, subsequent allegations built upon it cannot survive independently.

Locus Standi of the Appellant

The Tribunal held that since the demand and allegations against the appellant were founded upon the Panchnamas, the appellant had every right to challenge their legality and evidentiary worth. The right to challenge illegally obtained or procedurally defective evidence cannot be denied merely based on some narrative.

Procedural Fairness in Tax Adjudication

The case highlights an important principle that serious allegations such as suppression, evasion, and confiscation carry grave civil and quasi-criminal consequences. Therefore, it goes without saying that the Procedural safeguards assume heightened significance; Principles of natural justice must be strictly followed; Evidence must withstand judicial scrutiny; and Investigative shortcuts cannot replace lawful proof.

LESSONS FOR REVENUE

The ruling carries significant implications for investigative agencies:

1. Search proceedings must be transparent

Authorities cannot mechanically use 'stock witnesses' or 'amenable witness' or 'witnesses with dubious credentials'or 'Fly by Night witness' from distant locations.

It is noteworthy that in several cases, conveniently available Panch witnesses are found reaching the spot simultaneously - often even at locations such as the 10th floor of a building - yet subsequently fail to appear before Courts or adjudicating authorities after the arrest of the accused or issuance of show cause notices. In many other matters, although the alleged incident is stated to have occurred at busy public places, the investigating officers curiously rely solely upon the Panchnama while ignoring readily available independent evidence such as local CCTV footage, evidently because such material may not support the narrative sought to be projected during investigation.

2. Reasons for deviation must be recorded

If local witnesses are unavailable or unwilling, the Panchnama must expressly record:

• Attempts made;
• Refusals received; and
• Circumstances necessitating alternate witnesses.

Before making a search under this Chapter, the officer or other person about to make it shall call upon two or more independent and respectable inhabitants of the locality in which the place to be searched is situate or of any other locality if no such inhabitant of the said locality is available or is willing to be a witness to the search, to attend and witness the search and may issue an order in writing to them or any of them so to do. Any person who, without reasonable cause, refuses or neglects to attend and witness a search under this section, when called upon to do so by an order in writing delivered or tendered to him, shall be deemed to have committed an offence under section 187 of the IPC. The text of statute is clear and revenue has no right to argue that statute should not be followed or fix tax liabilities or penalties based on illegal or vitiated searches or inadmissible or irrelevant testimonies.

3. Panch witnesses must be produced

If the investigating agencies want to rely upon a Panchnama, it must secure presence of PWs before adjudicating authority or courts and make them available for examination/cross-examination, if deem fit.

4. Natural justice cannot be diluted

Mere assertions or narratives or written confirmations by investigating officers cannot substitute effective examination/cross examination or make those PWs as independent and reliable local inhabitants.

5. Foundational evidence must be reliable

Revenue should bear in mind that where the entire case originates from a defective search proceeding violating clear statutory provisions, subsequent evidence may also lose credibility.

Conclusion

The present case highlights the critical importance of procedural safeguards in search and seizure proceedings under fiscal statutes. Section 18 of the Central Excise Act incorporates the safeguards contained in Section 100(4) CrPC, which requires association of independent and respectable inhabitants of the locality during search proceedings. Departure from this statutory requirement must be justified and recorded. In the instant matter, the Panch witnesses were residents of places situated more than 300 kilometres away from the searched premises, while the Panchnamas failed to record any reason for non-availability of local witnesses. More importantly, the Panch witnesses were neither examined by the department nor made available for effective cross-examination despite repeated summons.

Judicial precedents such as Pradeep Narayan Madgaonkar, Arya Bhushan Bhandar, Kamlesh Gupta, and Kisan Ratan Singh establish that denial of cross-examination and non-compliance with statutory safeguards substantially affect the evidentiary value of a Panchnama. Courts have repeatedly emphasized that procedural fairness and natural justice cannot be sacrificed in adjudication proceedings.

CBIC has issued Instruction No. 01/2020-21 [GST-Investigation] dated 02.02.2021 highlighting the provisions of special act as well as CrPC. It prescribes that the search shall be made in the presence of two or more independent witnesses who would preferably be respectable inhabitants of the locality, and if no such inhabitants are available or willing, the inhabitants of any other locality should be asked to be witness to the search. PSU employees, Bank employees etc., may, be included as witnesses during sensitive search operations to maintain transparency and credibility. In the sensitive premises, videography of the search proceedings may also be considered and the same may be recorded in Panchnama. One can always argue that searches involving substantial revenue implications or in cases where goods are seized or persons are placed under arrest can easily be termed as sensitive search. The dubious practice of using informants or amenable persons with past connection with concerned departments as search witness merits scrutiny. Data analytics should be used to curb the practice of using same Panch witness repeatedly over the years.

In most cases, the fact that no person who was inhabitant of the locality where the search was to take place stands summoned for being a witness to the proceedings. On the contrary Revenue routinely uses their own witnesses for conducting the searches and consequent seizures. This fact itself establishes a motive on the part of the Revenue and there remains no explanation as to why a local inhabitant was not called for to be a witness to the proceedings. Strangely, it is never the Revenue's case that some local inhabitants were called and they refused to participate. Act provides prescription for dealing with such eventualities.

The decision ultimately reinforces the principle that where the very foundation of the department's case rests upon doubtful or unproved Panchnamas, the subsequent allegations built upon such evidence cannot be sustained. Search proceedings must therefore be conducted transparently, fairly, and strictly in accordance with law.

The demand of duty amounting to Rs. 477 Crores has ultimately been set aside by the CESTAT owing to failure of the revenue authorities to adhere to clear statutory mandates and because of a loosely conducted investigation. The case demonstrates how serious procedural infirmities can result in substantial loss of revenue and collapse of otherwise significant proceedings. The provisions of the CrPC/BNSS, relating to searches shall, so far as may be, apply to searches under taxation statutes unless something contrary is specifically incorporated in such acts. It is high time that meaningful lessons are drawn from such cases and officers exercising wide and stringent investigative powers against taxpayers are directed to act strictly in accordance with the clear mandate of law and established procedural safeguards prescribed by legislature.