Cross-examination rights bar excise demand based only on third-party statements without independent corroboration.

CESTAT Kolkata AT held that a Central Excise demand and related penalties could not be sustained when they rested solely on third-party statements without independent corroboration of non-receipt of goods. The assessee had repeatedly sought cross-examination of the manufacturers and dealers whose statements were relied upon, and refusal of that request was found unsustainable because adverse findings cannot be based on untested evidence when a fair opportunity to challenge credibility is denied. The denial of cross-examination rendered the statements unreliable for confirming the demand, and the appeals succeeded.

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Issues: Whether the demand of Central Excise duty and consequential penalty could be sustained when the entire case rested on third-party statements and cross-examination of those witnesses was denied.

Analysis: The demand was founded solely on statements of manufacturers and dealers said to have issued bogus invoices, without any independent corroborative evidence establishing non-receipt of goods. The appellants consistently sought cross-examination of the persons whose statements were relied upon, but the request was rejected on the ground that those persons did not appear before the adjudicating authority. Such rejection was held unsustainable because adverse findings against an assessee cannot rest on untested third-party statements when the assessee is denied a fair opportunity to challenge their veracity. The denial of cross-examination rendered the statements unreliable for confirmation of demand.

Conclusion: The demand and penalties were not sustainable, and the appeals succeeded.

Ratio Decidendi: Where the revenue relies on third-party statements to establish evasion or wrongful availment of credit, effective cross-examination must be afforded; in the absence of such opportunity, the statements cannot be used as the sole basis for confirming demand.

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