2025 (8) TMI 1695 - HC - GST

Petition dismissed challenging s.74 WBGST/CGST show-cause notice; ITC tied to purchases, no prejudice from witnesses

Sanjay Chamaria Versus The Principal Chief Commissioner, CGST & CX, Kolkata Zone & Ors.

HC dismissed the petition challenging a show-cause under s.74 WBGST/CGST Act. The court found the ITC claimed stemmed from the petitioner's purchases and ... Availing bogus and ineligible Input Tax Credit (ITC) - seeking to represent as a procedural irregularity in deciding the showcause issued u/s 74 of the WBGST /CGST Act, 2017 - petitioner was not afforded with an opportunity to cross examine the truck drivers - violation of principles of natural justice - HELD THAT:- From the show cause notice, it would transpire that a search was conducted at the residence of the petitioner at Block A1, Flat 301, 3rd Floor, Arihant Enclave, 493/B/57A G.T. Road, Shibpur, Howrah – 711102 at around 9.20 A.M. on 23rd January 2024. At the relevant point of time the premises was locked. Later, the petitioner had come forward and unlocked the flat, wherein few furniture were found. Accordingly, a panchnama was drawn. The ITC availed by the petitioner under the said Act originates from purchases made by him. The outward sale made by the petitioner bears no relation with the ITC arising out of purchase and as such, there can be no question of correlating the same - the proper officer had determined the case on the basis of the documents disclosed by the petitioner. Although, the petitioner would contend that the petitioner has been prejudiced by reasons of failure on the part of the proper officer to make available the witnesses who had given their statements for cross examination, it is however found that the petitioner only was interested to cross examine the witnesses in order to ascertain whether the witnesses had given their statements under duress. No documents had been disclosed by the petitioner in support of the aforesaid contention. None of the witnesses had retracted their statements. The petitioner has also not put forward any other statements made by the aforesaid persons that their statements were given under duress. Ordinarily, cross examination is permitted to test the veracity of statements made by a witness, to find out the accuracy of the testimony so that the testimony can be impeached on the witnesses not being able to hold on to their testimony during cross-examination. It is thus, not the case of petitioner that the witnesses had given false statement, rather they had been compelled to do so. In the facts of the instant case, the petitioner having contended that the evidence tendered by the aforesaid witnesses being given under duress, the onus was on the petitioner to produce such persons as witnesses at the first instance and not seeking for cross examination of such witnesses. Petition dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether denial of an opportunity to cross-examine persons (truck/transport vehicle owners) whose statements were recorded in the investigation infringed principles of natural justice to the extent of warranting interference under extraordinary writ jurisdiction. 2. Whether, in the facts of the case, the onus lay on the petitioner to produce evidence or the witnesses themselves to be examined to substantiate a claim that statements were given under duress, and whether failure to do so disentitled the petitioner to cross-examination relief. 3. Whether statements of transporters and findings of non-existence of suppliers, as recorded by the proper officer, could be relied upon without oral cross-examination when they collectively indicate a pattern of transactions on paper contravening Section 16(2)(b) of the Act. 4. Whether outward sales or the lack thereof are relevant to determine eligibility for Input Tax Credit under Section 16 of the Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Denial of opportunity to cross-examine and entitlement to writ relief Legal framework: Principles of natural justice require a reasonable opportunity to be heard; cross-examination is ordinarily a facet of testing oral statements. Extraordinary writ jurisdiction can be invoked where violation of natural justice is shown. Precedent treatment: The order notes the existence of judicial authorities recognising cross-examination in appropriate cases (referred to collectively), but does not invoke any specific overruling or departure from such precedents. Interpretation and reasoning: The Court examined the record, including the show-cause notice, the petitioner's replies, recorded statements of the petitioner, and the recorded statements of seven vehicle owners. The proper officer had recorded that each vehicle owner stated their vehicle numbers were misused and that they had not transported goods to the taxpayer. The Court observed that no witness had retracted their statements and that the petitioner did not produce any contemporaneous material showing duress or calling the witnesses to testify on his behalf. Ratio vs. Obiter: Ratio - where a petitioner challenges administrative findings on the ground of denial of cross-examination, the petitioner must show a real prejudice or an entitlement to cross-examine by adducing prima facie material that the statements were false or obtained under duress; absence of such material may justify upholding the reliance on recorded statements. Obiter - general observations on the nature of cross-examination as a tool to test veracity. Conclusions: The Court concluded that there was no proven violation of natural justice sufficient to invoke writ relief. The petitioner's contention that cross-examination was necessary to test duress was unsupported by evidence; accordingly, refusal to permit cross-examination did not call for interference under Article 226 in the instant facts. Issue 2 - Onus to produce witnesses or evidence when alleging statements given under duress Legal framework: In adjudicatory administrative proceedings, the party asserting impropriety in the record bears the onus of supporting that assertion with evidence; cross-examination is not a substitute for adducing prima facie proof of taint. Precedent treatment: The Court referenced the settled position that cross-examination serves to impeach testimony, but emphasised that an allegation of compulsion or duress requires the party making the allegation to put forward material to justify seeking cross-examination. Interpretation and reasoning: The petitioner had proffered only sample invoices and sample bank statements; no affidavits from the alleged duressed witnesses, no retractions, and no other documentary proof of coercion were placed on record. The petitioner's own recorded answers during search-interrogation acknowledged availing ITC as per GSTR-2A and admitted absence of business records at the principal place of business. The Court held that, given that posture, the petitioner could not simply seek cross-examination as a fishing expedition; the onus was on the petitioner to produce the witnesses or prima facie material showing duress at the earliest stage. Ratio vs. Obiter: Ratio - allegation that witnesses gave statements under duress requires the alleging party to produce supporting material; failure to do so permits the adjudicator to act on the recorded statements without permitting cross-examination as a matter of right. Obiter - practical note that cross-examination tests veracity but is not an automatic entitlement absent evidentiary basis. Conclusions: The Court held that the petitioner's failure to produce the witnesses or material evidence of duress disentitled him to judicial intervention on the ground that he had been denied cross-examination. Issue 3 - Reliance on transporters' statements and non-existence of suppliers without oral cross-examination Legal framework: Adjudicatory authority may rely on recorded statements and documentary material to form a finding; credibility may be inferred from consistent patterns in statements and supporting documentary indicators (e.g., alert lists, GSTR2A, absence of records). Precedent treatment: The proper officer relied upon prior case law (generically cited) to the effect that statements and concomitant material can demonstrate a pattern of evasion; the Court accepted that such authorities permit reliance on written statements where they are consistent and uncontradicted. Interpretation and reasoning: The seven vehicle owners consistently stated misuse of vehicle numbers and non-transport of goods to the taxpayer's premises; the petitioner's own admissions (absence of documents, acknowledgement of ITC entries in GSTR-2A) corroborated the position. The Court noted that such consistency points to a pattern of transactions on paper and a violation of Section 16(2)(b). Given no retraction or contradictory evidence, the proper officer's decision to treat those statements as true without ordering cross-examination was reasonable. Ratio vs. Obiter: Ratio - consistent, uncontradicted statements, when coupled with documentary indicia and admissions by the taxpayer, can be relied upon in adjudication without necessitating cross-examination. Obiter - broader comments on factual patterns supporting inference of paper transactions. Conclusions: The Court upheld reliance on the transporters' statements and related documentary material to sustain findings of bogus/ ineligible ITC in the absence of countervailing evidence or retraction. Issue 4 - Relevance of outward sales to ITC eligibility under Section 16 Legal framework: Section 16 prescribes eligibility conditions for availing Input Tax Credit; eligibility is determined with reference to purchases and prescribed conditions, not the taxpayer's outward sales. Precedent treatment: The proper officer rejected any attempt to correlate outward sales with ITC eligibility; the Court endorsed that view. Interpretation and reasoning: The Court agreed with the proper officer's analysis that outward sales bear no direct relation to the question whether ITC arises from bona fide purchases. Eligibility under Section 16 is governed by statutory conditions relating to the purchase chain and documentary proof, and not by the existence or volume of outward supplies. Ratio vs. Obiter: Ratio - outward sales are irrelevant to the entitlement to ITC under Section 16; therefore, arguments attempting to correlate outward sales with ITC admissibility are factually erroneous. Obiter - none. Conclusions: The Court held that the petitioner's submissions attempting to link outward sales with ITC eligibility were inadmissible and factually incorrect; the proper officer correctly applied Section 16 principles. Overall Disposition The Court concluded that, on the material before it, the petitioner failed to demonstrate a breach of natural justice warranting extraordinary writ relief; the adjudicator's reliance on recorded statements and documentary indicia was justified in absence of retraction or prima facie evidence of duress, and the challenge was dismissed. Cross-references: Issue 1 and Issue 2 are interlinked - petitioner's failure under Issue 2 to adduce evidence of duress determined the outcome under Issue 1; Issue 3 and Issue 4 informed the substantive sufficiency of the adjudicatory findings.