2025 (4) TMI 1154 - HC - GST

GST show cause notice denial of cross-examination cannot bypass statutory appeal under Section 107 CGST Act

M/s. Vallabh Textiles Versus Additional Commissioner Central Tax Gst, Delhi East And Ors.

Delhi HC dismissed a writ petition challenging GST show cause notice proceedings where petitioner was denied cross-examination of third-party witnesses. ... Consolidation of Show Cause Notice (SCN) proceedings for multiple financial years - denial of Petitioner’s right to cross-examine certain third parties - violation of principles of natural justice - HELD THAT:- It can be seen that the impugned order is a very detailed order passed by the Adjudicating Authority running into more than 60 pages, which has discussed all the evidence which clearly as per the Authority demonstrates that undeclared sales were being made by the Petitioner to avoid the payment of GST. Moreover, the question as to whether in a particular year, the proper declaration was given, whether the facts given by a particular witness are right or wrong and whether the Petitioner needs to be permitted to rebut are all factual issues that cannot be considered in writ jurisdiction. The rationale behind setting aside an order/judgment on the grounds of non-provision of the right to cross-examine is to safeguard the affected party from being prejudiced due to non-providing of cross examination. Therefore, such reasoning presumes/implies the existence of prejudice. In other words, if the alleging party fails to prove any substantial prejudice caused to it due to such non-provision, it shall not have the inherent right to set aside such an order/judgment. The Court is of the considered view that parties cannot, by praying for cross-examination, cannot convert Show-cause Notice proceedings into mini-trials. Persons seeking cross-examination ought to give specific reasons why cross-examination is needed in a particular situation and that too of specific witnesses. A blanket request to cross-examine all persons whose statements have been recorded by the Department, many of whom are typically employees, sellers, purchasers, or other persons connected to the entity under investigation, cannot be sustained. If a prayer for cross-examination is made, the Authority has to consider the same fairly and if the need is so felt in respect of a particular person, the same ought to be permitted. If not, the Authority can record the reasons and proceed in the case. Moreover, cross examination need not also be of all persons whose statements are recorded. It could be permitted by the Authority in case of some persons and not all. Conclusion - In the present case, the mere rejection of the Petitioner’s request for cross-examination cannot, in and of itself, be treated as a sufficient ground to bypass the statutorily prescribed appellate remedy and invoke the writ jurisdiction of this Court. The Court is of the opinion that the Petitioner ought to avail of its appellate remedy in accordance with law in respect of both orders dated 20th January, 2025 and 29th January, 2025 including the demand raised on 1st February, 2025 - Petitioner is, accordingly, permitted to approach the Appellate Authority by way of an appeal under Section 107 of the CGST Act within thirty days - Petition disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter include:Whether the consolidation of Show Cause Notice (SCN) proceedings for multiple financial years is permissible under the CGST Act, 2017;Whether the denial of the Petitioner's request for cross-examination of certain third-party witnesses during adjudication proceedings violated principles of natural justice;The extent and scope of the right to cross-examination in GST adjudication proceedings and whether such right is absolute or subject to judicial discretion;Whether the Petitioner's remedy lies in writ jurisdiction under Article 226 of the Constitution or through statutory appellate remedies under the CGST Act;Whether the impugned orders confirming GST liability and imposing penalties are arbitrary or violative of constitutional provisions including Articles 14, 19(1)(g), 265, and 300A.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legality of Consolidation of SCN for Multiple Financial YearsRelevant legal framework and precedents: Section 74 of the CGST Act, 2017 governs the issuance of SCNs for tax evasion. The Court examined whether there is any statutory prohibition against issuing a consolidated SCN covering multiple financial years.Court's interpretation and reasoning: The Court referred to its earlier order dated 3rd October 2024 in a related writ petition where it held that there is no express statutory bar to consolidation of SCNs for multiple years. It was observed that such a challenge does not constitute a jurisdictional defect warranting writ intervention. The Court left open the possibility for the Petitioner to initiate independent proceedings for specific years if required.Key evidence and findings: The SCN dated 29th May 2024 covered financial years 2017-18 to 2021-22. The Court found no statutory impediment to such consolidation.Application of law to facts: The Court dismissed the challenge to the consolidated SCN, holding that the issuance was in accordance with law.Treatment of competing arguments: The Petitioner initially challenged the consolidation but failed to mention the prior writ petition and order. The Court noted the inadvertent omission but relied on the prior ruling.Conclusion: Consolidation of SCNs for multiple financial years under Section 74 of the CGST Act is permissible and does not invalidate the proceedings.Issue 2: Denial of Right to Cross-Examination of Third PartiesRelevant legal framework and precedents: The right to cross-examination in adjudicatory proceedings under the CGST Act is not absolute but subject to the principles of natural justice. The Court relied on precedents including the Telangana High Court decision in Mohammed Muzzamil & Another vs. CBIC, the Supreme Court decision in M/s. Telestar Travels Pvt. Ltd. v. Special Director of Enforcement, and this Court's recent ruling in Sushil Aggarwal v. Principal Commissioner of Customs.Court's interpretation and reasoning: The Adjudicating Authority had denied the Petitioner's request to cross-examine five individuals on the ground that their statements were corroborative of undisputed documentary evidence and did not materially affect the case. The Court emphasized that cross-examination is not a matter of unfettered right but is warranted only when it is essential to ensure natural justice and when failure to allow it would cause prejudice.The Court quoted from the Telestar Travels judgment:'The rationale behind setting aside an order/judgment on the grounds of non-provision of the right to cross-examine is to safeguard the affected party from being prejudiced due to non-providing of cross examination... if the alleging party fails to prove any substantial prejudice caused to it due to such non-provision, it shall not have the inherent right to set aside such an order/judgment.'It was noted that the statements sought to be cross-examined were documentary in nature, supported by independent evidence, and the Petitioner had the opportunity to rebut the same.Key evidence and findings: The Adjudicating Authority's detailed order (over 60 pages) discussed the evidence extensively and found that the Petitioner was engaged in undeclared sales to evade GST. The denial of cross-examination was based on the irrelevance and corroborative nature of the statements.Application of law to facts: The Court held that the denial of cross-examination did not cause any prejudice to the Petitioner and was in line with established legal principles. The right to cross-examination cannot be used to convert SCN proceedings into mini-trials.Treatment of competing arguments: The Petitioner argued that denial of cross-examination violated natural justice. The Respondent contended that such orders are appealable and the Petitioner should avail statutory remedies. The Court agreed with the Respondent, emphasizing the availability of appeal under Section 107 of the CGST Act.Conclusion: The denial of cross-examination was justified on the facts and law. The Petitioner's remedy lies in the appellate process, not writ jurisdiction.Issue 3: Availability and Scope of Writ Jurisdiction vs. Statutory Appellate RemedyRelevant legal framework and precedents: Article 226 of the Constitution permits writ jurisdiction, but such jurisdiction is discretionary and not a substitute for statutory remedies. The CGST Act provides an appellate mechanism under Section 107.Court's interpretation and reasoning: The Court observed that factual disputes regarding the correctness of the demand, evidence, and penalty imposition are not ordinarily entertained in writ jurisdiction. The Petitioner's failure to exhaust statutory remedies precludes writ relief.Key evidence and findings: The Petitioner was directed to file an appeal within 30 days. The Court clarified that the appeal shall be heard on merits without limitation objections.Application of law to facts: The Court declined to entertain the writ petition on grounds that the Petitioner had an effective statutory remedy.Treatment of competing arguments: The Petitioner sought writ relief contending arbitrariness and violation of constitutional rights. The Court held that such contentions are better addressed in appeal.Conclusion: The Petitioner must pursue the appellate remedy under the CGST Act. Writ jurisdiction is not appropriate for challenging the impugned orders.3. SIGNIFICANT HOLDINGSThe Court established and reiterated the following core principles:'On an ex-facie perusal of Section 74 of the Central Goods & Services Tax Act, 2017, we find ourselves unable to sustain that challenge [to consolidation of SCNs] in the absence of any prohibition that may have been statutorily engrafted in this respect.''Cross-examination cannot be claimed as a matter of right especially if it does not make any material difference.''The rationale behind setting aside an order/judgment on the grounds of non-provision of the right to cross-examine is to safeguard the affected party from being prejudiced due to non-providing of cross examination... if the alleging party fails to prove any substantial prejudice caused to it due to such non-provision, it shall not have the inherent right to set aside such an order/judgment.''The right to cross-examination cannot be an unfettered right... parties cannot, by praying for cross-examination, convert Show-cause Notice proceedings into mini-trials.''The mere rejection of the Petitioner's request for cross-examination cannot, in and of itself, be treated as a sufficient ground to bypass the statutorily prescribed appellate remedy and invoke the writ jurisdiction of this Court.''The Petitioner is permitted to approach the Appellate Authority by way of an appeal under Section 107 of the CGST Act within thirty days. If the appeal is filed within the said period, the same shall be considered on merits and shall not be dismissed on the ground of being barred by limitation.'The final determination was that the writ petition was not maintainable and the Petitioner must avail statutory appellate remedies. The impugned orders confirming GST liability and penalties were upheld in principle, subject to appellate scrutiny. The denial of cross-examination did not violate natural justice as no prejudice was demonstrated.