Cross-examination of retracted statements is required when liability depends on them; otherwise natural justice may be violated.

Denial of cross-examination of a witness whose retracted statement was relied on can violate natural justice where that statement substantially forms the basis of liability. The court noted that, because the managing director's statement was used against the assessee and later retracted, fairness required making him available for cross-examination; failure to do so deprived the assessee of a reasonable opportunity to defend itself. No similar prejudice was shown regarding the accountant, whose information was independently verified. The adjudication was therefore vitiated to that extent, and the matter was remanded for fresh consideration with the merits left open.

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Issues: Whether denial of cross-examination of the witness whose statement was relied on violated the principles of natural justice and vitiated the duty-demand proceedings.

Analysis: The proceedings were founded substantially on the statement of the managing director, and that statement was retracted. In such a case, fair hearing required that the person whose statement was used against the assessee be made available for cross-examination, because cross-examination is an integral part of audi alteram partem where the statement directly implicates liability. The non-production of the managing director for cross-examination therefore denied the appellant a fair and reasonable opportunity to defend itself. By contrast, no prejudice was shown in respect of the accountant, whose information was independently verified and whose whereabouts were not traced.

Conclusion: The proceedings were vitiated to the extent that the managing director was not made available for cross-examination, and the matter had to be remanded for fresh consideration.

Final Conclusion: The appeals were allowed, the original adjudication was set aside, and the matter was remitted for de novo consideration while keeping the merits open.

Ratio Decidendi: Where an adverse finding is substantially based on a retracted statement, the person making that statement must ordinarily be offered for cross-examination, and failure to do so can amount to denial of natural justice warranting remand.

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