Cross-examination rights upheld in customs proceedings after department denied opportunity without hearing under Section 128

Gujarat HC addressed cross-examination rights in customs proceedings involving clandestine manufacture. The respondent rejected petitioner's application for cross-examination ex-parte without hearing. Relying on MS NAINA v. COLLECTOR OF CUSTOMS precedent, HC held that denial of cross-examination opportunity violates natural justice principles. Court clarified that under Section 128 of Customs Act, parties have right to call defense witnesses, including those dropped by department. However, cross-examination requires prior examination as witness by one party. HC disposed petition after finding statements of five persons relevant for adjudication and granting cross-examination request.

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Issues Involved:
1. Issuance of show cause notice by the Central Excise Department.
2. Rejection of the application for cross-examination.
3. Alleged violation of principles of natural justice.
4. Denial of opportunity to examine defence witnesses.
5. Non-compliance with court orders and procedural fairness.

Issue-wise Detailed Analysis:

1. Issuance of Show Cause Notice:
The petitioner, engaged in manufacturing stainless steel products, received a show cause notice from the Central Excise Department on 08.05.2017. The notice alleged clandestine manufacture and clearance of finished goods from 2012-13 to 2015-16. The petitioner responded with an interim reply and requested cross-examination of individuals whose statements were recorded under Section 14 of the Central Excise Act, 1944.

2. Rejection of the Application for Cross-Examination:
Initially, the adjudicating authority rejected the application for cross-examination ex-parte on 10.10.2018 without granting a hearing. The petitioner sought reconsideration, and the authority eventually allowed the cross-examination of certain individuals. However, the petitioner later requested cross-examination of additional individuals whose statements were not relied upon in the show cause notice. This request was denied on 28.08.2019, prompting the petitioner to submit written submissions and seek a personal hearing.

3. Alleged Violation of Principles of Natural Justice:
The petitioner contended that the denial of cross-examination without proper reasoning violated the principles of natural justice. The Court noted that the right to cross-examine is integral to natural justice, referencing the decisions in M.S. Naina vs. Collector of Customs and Savino Micron (India) Pvt. Ltd. vs. Union of India, which emphasized the importance of cross-examination in ensuring fair adjudication.

4. Denial of Opportunity to Examine Defence Witnesses:
The petitioner argued that the adjudicating authority's refusal to allow the examination of defence witnesses, whose statements were recorded but not relied upon, was unjust. The Court recognized the right of litigating parties to request the examination of defence witnesses, including those whose statements were not relied upon by the prosecution. However, it clarified that cross-examination of witnesses without first examining them as defence witnesses was impermissible.

5. Non-Compliance with Court Orders and Procedural Fairness:
Despite the Court's directives to file an affidavit and provide a hearing, the respondent passed an ex-parte order-in-original on 29.10.2020, confirming the duty demand proposed in the show cause notice. The Court found this action to be in gross violation of natural justice principles and set aside the ex-parte order, remanding the matter back to the adjudicating authority with specific directions to ensure procedural fairness. The Court emphasized the need for the authority to consider the petitioner's request for examining defence witnesses and to conclude the proceedings within a stipulated timeframe.

Conclusion:
The Court upheld the petitioner's right to a fair hearing and cross-examination, setting aside the ex-parte order due to procedural lapses and non-compliance with natural justice principles. The matter was remanded back to the adjudicating authority with directions to allow the examination of defence witnesses and ensure a fair adjudication process. The proceedings were ordered to be concluded within eight weeks from the date of receipt of the judgment.

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