2025 (1) TMI 980 - HC - GST

Appellate Authority under Section 107(11) CGST Act Cannot Remand Cases; Cross-Examination Essential Under Section 75(4)

Nishad K.U., Prop. M/s. Woodtunes Enterprises Versus The Joint Commissioner, Central Tax And Central Excise, Cgst Kochi Commissionerate Kochi, The Additional Director, Dggi, Kochi Zonal Unit, Central Board Of Indirect Taxes & Customs, Union Of India.

The HC held that the Appellate Authority under section 107(11) of the CGST Act lacks power to remand cases, limiting it to confirming, modifying, or ... Levy of penalty u/s 74 (9) of the Central Goods & Services Tax Act, 2017 - invocation of jurisdiction under Article 226 of the Constitution of India - availability of remedy of an appeal u/s 107 of the Act - violtion of principles of natural justice - HELD THAT:- On a reading of section 107 (11) of the Act, it is evident that the Appellate Authority does not possess the power to remand the case, if in case any anomaly is detected in the impugned order, or even when there is any violation of the principles of natural justice. The Appellate Authority can only confirm, modify or annul the order appealed against. The aforesaid provision has specifically curtailed the right of the appellate authority to remand the case. Hence, in cases of violation of principles of natural justice, resorting to the remedy under Article 226 of the Constitution of India is legally justified. In the instant case statements of 20 witnesses were relied upon by the Adjudicating Authority for the purpose of entering findings against the petitioner and consequentially imposing penalty. The basic requirement of the rule of law is to grant an opportunity of hearing to the person against whom proceedings have been initiated. When statements of third parties are relied upon, it is one of the fundamental requirements that the party against whom such statements have been relied upon is granted an opportunity to question the person who gave such statements. This requirement flows from the opportunity of hearing required to be given as per section 75(4) of the CGST Act. Unilateral statements behind the back of a person cannot under any circumstances be justified under the rule of law, even if the proceedings are quasi judicial in nature. Considering the nature of the order issued against the petitioner which is impugned in this writ petition, this Court is of the view that failure to grant an opportunity to the petitioner for cross-examination and relying upon the statements of persons to impose penalty have violated the principles of natural justice. Conclusion - In the instant case, the circumstances compel this Court to observe that an opportunity for cross-examination was a necessity. This Court is also compelled to observe that failure to grant an opportunity to cross-examine the person whose statements were relied upon is in effect delaying the whole proceeding. Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:Whether the impugned order imposing penalties under the CGST and SGST Acts should be interfered with under Article 226 of the Constitution of India, despite the availability of an appellate remedy under Section 107 of the Acts.Whether the refusal to grant the petitioner an opportunity to cross-examine the witnesses, whose statements were relied upon in the adjudication process, constitutes a violation of the principles of natural justice.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Interference under Article 226Relevant legal framework and precedents: Article 226 of the Constitution of India empowers High Courts to issue certain writs. Section 107 of the CGST/SGST Acts provides for an appellate remedy against orders passed under these statutes.Court's interpretation and reasoning: The court noted that although an appellate remedy is available, the Appellate Authority under Section 107 lacks the power to remand cases for reconsideration, even in instances of procedural anomalies or violations of natural justice. This limitation justifies the invocation of Article 226.Key evidence and findings: The petitioner argued that the order was passed without granting a fair opportunity to cross-examine witnesses, which is a breach of natural justice. The court found merit in this argument.Application of law to facts: The court emphasized that the lack of a remand provision in Section 107 supports the use of Article 226 to address violations of natural justice.Treatment of competing arguments: The respondents argued that the petitioner's request for cross-examination was frivolous and intended to delay proceedings. The court disagreed, emphasizing the importance of cross-examination in ensuring fairness.Conclusions: The court concluded that the invocation of Article 226 was justified due to the procedural limitations of the appellate remedy under Section 107.Issue 2: Violation of Natural JusticeRelevant legal framework and precedents: Section 75(4) of the CGST Act requires an opportunity of hearing, though it does not explicitly mandate cross-examination. The court referred to precedents, including the Supreme Court's decision in Andaman Timber Industries, which underscored the necessity of cross-examination to uphold natural justice.Court's interpretation and reasoning: The court emphasized that cross-examination is crucial for testing the credibility of third-party statements relied upon in adjudication. The refusal to allow cross-examination was deemed a breach of natural justice.Key evidence and findings: The petitioner was denied the opportunity to cross-examine 20 witnesses whose statements were pivotal to the adjudication. The court found this denial unjustified.Application of law to facts: The court applied the principles from Andaman Timber Industries and other precedents, determining that the denial of cross-examination constituted a serious procedural flaw.Treatment of competing arguments: The respondents' argument that cross-examination was unnecessary was rejected. The court held that fairness demands such an opportunity unless it is impractical or frivolous.Conclusions: The court concluded that the refusal to grant cross-examination violated the principles of natural justice, warranting the setting aside of the impugned order.3. SIGNIFICANT HOLDINGSVerbatim quotes of crucial legal reasoning:'Cross-examination is the mode in which the veracity of the alleged statement can be tested. Fairness demands that the reliability and credibility of the statement of a third party be tested upon cross-examination.'Core principles established:The right to cross-examine witnesses whose statements are relied upon in adjudication is fundamental to upholding the principles of natural justice.The limitations of the appellate remedy under Section 107 of the CGST/SGST Acts justify the invocation of Article 226 in cases of procedural violations.Final determinations on each issue:The court set aside the impugned order and directed the first respondent to reconsider the matter, granting the petitioner an opportunity for cross-examination.The writ petition was allowed, emphasizing the necessity of adhering to principles of natural justice in quasi-judicial proceedings.