2024 (4) TMI 1258 - HC - Central Excise

Revenue appeal dismissed after tribunal sets aside confiscation orders based on ex parte statements without cross-examination opportunities

Commissioner, Central Goods And Service Tax Versus M/s Parmarth Iron Pvt. Ltd. And 7 Others

Commissioner, Central Goods And Service Tax Versus M/s Parmarth Iron Pvt. Ltd. And 7 Others - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this appeal under Section 35G of the Central Excise Act, 1944, arising from the order of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), are:Whether the CESTAT was justified in setting aside the Order-in-Original dated 23.6.2014, which had upheld demands raised based on statements of certain witnesses who were not made available for cross-examination;Whether the demands raised on the basis of stock of inputs, which was allegedly not properly ascertained, were valid;Whether the confiscation of cash was lawful;Whether the failure of the Revenue authorities and the Adjudicating Authority to provide opportunity for cross-examination of witnesses, despite specific directions, vitiated the adjudication process;Whether ex parte statements recorded during investigation can be relied upon as evidence without opportunity for cross-examination;Whether the Revenue fulfilled its obligation to produce witnesses relied upon for cross-examination and whether the appellants bore any responsibility in this regard.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of setting aside the Order-in-Original on grounds of non-availability of witnesses for cross-examinationRelevant legal framework and precedents: The principles of natural justice require that a party against whom adverse findings are made must be given an opportunity to cross-examine witnesses whose statements are relied upon. The Supreme Court in Union of India v. Sardar Bahadur (1972) 4 SCC 618 and Bareilly Electricity Supply Co. Ltd. v. Workmen and Ors (1971) 2 SCC 61 have laid down that statements cannot be treated as evidence unless the party has an opportunity to cross-examine the declarant. The Delhi High Court in CCE v. Vishnu & Co. Pvt. Ltd. (2016) 232 ELT 793 (Del) reiterated that the Department must produce witnesses it relies upon for cross-examination.Court's interpretation and reasoning: The Tribunal and the High Court found that the Revenue failed to produce 69 witnesses whose oral statements were relied upon by the Adjudicating Authority. Despite a clear direction in the earlier order dated 31.12.2012 to grant opportunity for cross-examination, this was not complied with. The Court emphasized that it was the Revenue's responsibility to produce these witnesses, not the appellants'.Key evidence and findings: The Tribunal noted that five specific witnesses (Sri Manmohan Gautam, Sri Bhagirath Roy, Sri Shailendra Gupta, Sri Pankaj Agarwal, and Sri Rajesh Sharma) were not produced for cross-examination. The appellants denied these individuals were employees of the company, supported by documentary evidence including Form 6-A under the Employees Provident Fund Scheme, which did not list these persons as employees. The Revenue had not conducted any enquiry to verify their employment status. Attempts to serve notices on these witnesses were unsuccessful, but summons during investigation resulted in their appearance and statements. However, they were not produced for cross-examination.Application of law to facts: Since the Revenue relied on statements of witnesses it failed to produce for cross-examination, those statements could not be treated as evidence. The Court held that ex parte statements cannot be blindly relied upon to draw adverse inferences. The failure to comply with the earlier direction to allow cross-examination amounted to violation of principles of natural justice, vitiating the adjudication order.Treatment of competing arguments: The Revenue contended that the appellants should have produced the witnesses for cross-examination. The Court rejected this, holding that since the witnesses were those of the Revenue, it was the Revenue's duty to produce them. The appellants' denial of employment and evidence supporting the same negated the Revenue's assumption that these witnesses were employees.Conclusion: The Tribunal was correct in setting aside the Order-in-Original on the ground that the Revenue failed to provide opportunity for cross-examination of witnesses whose statements formed the basis of the demands.Issue 2: Legitimacy of demands raised based on stock of inputs and confiscation of cashRelevant legal framework and precedents: Demands under the Central Excise Act must be supported by proper evidence, including correct ascertainment of stock and lawful confiscation procedures. The principles of natural justice and statutory safeguards apply to such proceedings.Court's interpretation and reasoning: The Court noted that the demands were primarily based on the statements of witnesses whose evidence was disallowed due to non-availability for cross-examination. There was no other independent evidence on record to support the additions made on account of stock discrepancies or cash confiscation. The Tribunal found that the stock of inputs was not properly ascertained and that the cash confiscation lacked lawful authority.Key evidence and findings: The absence of corroborative evidence apart from the disallowed witness statements meant the basis for the demands was weak. The Tribunal and the Court found no credible evidence to uphold the confiscation or stock-related demands.Application of law to facts: Without reliable evidence, the demands and confiscation could not be sustained. The failure to provide opportunity for cross-examination further undermined the Revenue's case.Treatment of competing arguments: The Revenue's reliance on statements and stock records was rejected due to procedural lapses and lack of proper evidence.Conclusion: The demands and confiscation were not legally sustainable in the absence of proper evidence and due process.Issue 3: Obligation to provide opportunity for cross-examination and consequences of non-complianceRelevant legal framework and precedents: The principles of natural justice, as enshrined in administrative law, mandate that an opportunity to cross-examine witnesses must be provided before adverse findings are drawn. The Supreme Court and High Courts have consistently held that failure to provide such opportunity vitiates the order.Court's interpretation and reasoning: The earlier Tribunal order dated 31.12.2012 explicitly directed the Adjudicating Authority to consider the request for cross-examination. The Court emphasized that this direction was binding and its non-compliance amounted to gross violation of natural justice. The Revenue was given two opportunities but failed to comply.Key evidence and findings: The record showed the Revenue's failure to produce witnesses despite summons and directions. The appellants cooperated and participated in the adjudication process.Application of law to facts: The Court held that non-compliance with the direction to allow cross-examination warranted setting aside of the adjudication order in entirety. Remanding the matter again was not justified given the protracted nature of the proceedings and failure of the Revenue to act diligently.Treatment of competing arguments: The Revenue's plea for further indulgence was rejected as the Court found no merit in allowing further delay or remand.Conclusion: The failure to provide opportunity for cross-examination was fatal to the Revenue's case, justifying dismissal of the appeal.3. SIGNIFICANT HOLDINGSThe Court held that:'We do not think that the statements should have been received in evidence as the appellant had taken no step to produce the persons who made the statements, for cross-examination by the respondent. It was the duty of the appellant (revenue) to have produced the persons whose statements were sought to be relied/proved for the cross-examination of the respondent.'This principle, drawn from the Supreme Court's ruling in Union of India v. Sardar Bahadur, was applied strictly to the facts, resulting in the disallowance of the Revenue's reliance on such statements.The Court reaffirmed the settled legal position that ex parte statements obtained during investigation cannot be blindly relied upon without opportunity for cross-examination, as such reliance would violate principles of natural justice.The Court concluded that the Tribunal's order setting aside the adjudication order in entirety was justified and no further remand or indulgence to the Revenue was warranted.Finally, the appeal was dismissed on the ground that no substantial question of law arose, and the principles of natural justice mandated dismissal due to non-compliance by the Revenue.