2021 (12) TMI 241 - HC - Central Excise

Dismissal of Petition Allows Final Reply to Notice, Witness Statements Require Cross-Examination

The High Court dismissed the writ petition, allowing the petitioner to submit a final reply to the show-cause notice within two weeks. The authority will ... Relevancy of statements under Section 9D of the Central Excise Act - Right to cross-examination in adjudication proceedings not at show-cause stage - Admissibility of statements recorded during investigation only after examination-in-chief and admission in evidence - Principles of natural justice in adjudicationRight to cross-examination in adjudication proceedings not at show-cause stage - Relevancy of statements under Section 9D of the Central Excise Act - Principles of natural justice in adjudication - Whether the petitioner was entitled to have witnesses, whose statements were recorded before issuance of the show-cause notice, produced for cross-examination at the stage of filing a reply to the show-cause notice. - HELD THAT: - The Court held that statements recorded prior to issuance of a show-cause notice cannot be regarded as recorded in the course of an inquiry or proceeding under the Act for purposes of Section 9D. A stage prior to issuance of a show-cause notice is not an adjudication; the show-cause is a step which invites a reply to a prima facie case. Reliance on statements recorded during investigation becomes relevant only when those statements are sought to be admitted in evidence in adjudication. Absent admission in evidence after examination-in-chief before the adjudicating authority, the noticee has no right to insist on cross-examination of makers of such statements at the reply-to-show-cause stage. If the Revenue intends to rely on such statements in adjudication, natural justice requires that the makers be examined in chief before the adjudicating authority, the examination-in-chief be placed on record and made available to the noticee, and only then the noticee may seek and be afforded opportunity to cross-examine. [Paras 11, 12]Petitioner was not entitled to cross-examine the witnesses at the stage of filing reply to the show-cause notice; the right to cross-examination arises in adjudication after statements are examined and admitted in evidence.Admissibility of statements recorded during investigation only after examination-in-chief and admission in evidence - Relevancy of statements under Section 9D of the Central Excise Act - Principles of natural justice in adjudication - The procedure to be followed by the adjudicating authority when statements recorded during investigation are relied upon and the consequential directions concerning adjudication of the show-cause notice. - HELD THAT: - The Court directed that the petitioner be permitted to file a final reply and that the adjudicating authority shall then decide whether to continue proceedings. If the Revenue wishes to rely on statements recorded under Section 14, the makers must be summoned and examined in chief before the adjudicating authority; a copy of that examination-in-chief must be made available to the assessee; statements not so examined-in-chief before the authority shall be eschewed from evidence and cannot support the show-cause notice; if examination-in-chief is recorded, the assessee shall be given suitable and reasonable opportunity to cross-examine and the evidence shall be recorded in the presence of the petitioner; thereafter the authority shall pass final order in accordance with law. The Court remanded the matter for fresh adjudication in accordance with Section 9D and these principles, leaving merits open. [Paras 9, 13, 14]Show-cause notice proceedings remanded for de novo adjudication; specific directions given on summoning, examination-in-chief, availability of that record to the assessee, right to cross-examine, and recording of evidence in presence of the petitioner, with final order to follow in accordance with law.Final Conclusion: Writ petition disposed by permitting the petitioner to file final reply; proceedings remanded for fresh adjudication in accordance with Section 9D and principles of natural justice - witness statements recorded pre-show-cause cannot be relied upon unless examined in chief before the adjudicating authority and the petitioner is afforded opportunity to cross-examine; all contentions on merits left open. Issues Involved:1. Validity of the show-cause-cum-demand notice.2. Right to cross-examine witnesses before submitting a reply to the show-cause notice.3. Application of Section 9D of the Central Excise Act, 1944.Detailed Analysis:1. Validity of the Show-Cause-Cum-Demand Notice:The Principal Additional Director General, Directorate General of GST Intelligence, issued a show-cause-cum-demand notice dated 24th September 2020, alleging violations of the Central Excise Act, 1944. The petitioner responded on 23rd October 2020, denying all allegations but requested that this letter not be treated as a formal reply. The petitioner also requested the cross-examination of witnesses whose statements were used to issue the show-cause notice, citing Section 9D of the Act.2. Right to Cross-Examine Witnesses Before Submitting a Reply:The Commissioner responded on 13th July 2021, stating that the request for cross-examination was premature as the petitioner had not formally replied to the show-cause notice. The petitioner, aggrieved by this denial, sought a writ from the High Court to prohibit further proceedings until compliance with Section 9D of the Act.The Court referred to the judgments of the Punjab and Haryana High Court and the Allahabad High Court. In the case of Commissioner of Central Excise, Meerut-I vs. Parmarth Iron Pvt. Ltd., it was held that the right to cross-examine witnesses does not arise before the adjudication proceedings commence. The Allahabad High Court in Kanpur Cigarettes Ltd. vs. Union of India supported this view, stating that cross-examination is only permissible during the adjudication process, not at the stage of replying to a show-cause notice.3. Application of Section 9D of the Central Excise Act, 1944:Section 9D stipulates that statements made before a Central Excise Officer are relevant only if the person is examined as a witness during adjudication or if certain conditions prevent their examination. The Punjab and Haryana High Court in G-Tech Industries vs. Union of India clarified that statements recorded during an investigation cannot be relied upon unless the witness is examined during adjudication and the statement is admitted as evidence.The High Court of Bombay concurred with these views, emphasizing that the right to cross-examine witnesses arises only after the adjudication proceedings have commenced and the statements are admitted as evidence.Conclusion and Orders:The Court disposed of the writ petition with the following directives:- The petitioner is granted liberty to file a final reply to the show-cause notice within a fortnight.- The relevant authority shall decide whether to proceed with the case after receiving the reply.- If no reply is received or if the decision is against the petitioner, the proceedings shall continue to their logical conclusion.- During adjudication, if any witness's statement is recorded and deemed relevant, it shall not be used against the petitioner unless an opportunity for cross-examination is provided.- The evidence of the witness shall be recorded in the petitioner's presence.- The final order shall be based on the evidence and other materials on record.The entire process should be completed preferably within six months of the petitioner's final reply. All contentions on the merits of the show-cause notice remain open, and there shall be no order as to costs.