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CX – If there are factual grounds to show that denial of cross-examination was based upon sound logic, then order cannot be interfered with: HC

By TIOL News Service

HYDERABAD ,NOV 14, 2017: THE petitioner has challenged an order passed by the CCE confirming a total demand of Rs.5,32,54,022/- purportedly towards recovery of the CENVAT Credit allegedly improperly availed.

It is the case of the DGCEI that the petitioner was irregularly availing CENVAT Credit of duty paid on certain goods claiming them as inputs without actually using the same in or in relation to the manufacture of their dutiable finished goods such as S.S. Wire, S.S. Flat, S.S. Wire Rod, S.S. Angle etc.

In the first round of proceedings the demand was confirmed by an ex-parte Order dated 20.05.2013. However, the CESTAT had by its order dated 08.09.2014 remanded the matter to the adjudicating authority.

In the de novo proceedings, the petitioner requested for cross-examination of some persons and inspection of documents. However, the request was rejected and the impugned order has been passed.

In the present petition, inter alia, it is submitted that there was a violation of the principles of natural justice inasmuch as the request of the petitioner to cross-examine the witnesses whose statements were relied upon, was turned down arbitrarily and the rejection of the request for cross-examination was also contrary to the order of remand passed by the CESTAT.

The High Court extracted the following paragraphs from the CESTAT order which read:

"5. In this case on 29-3-2013, the advocate for the appellant submitted a letter to the Commissioner wherein he gave the name of the persons whom he would like to cross-examine and also cited several decisions to support his submissions relating to cross-examination. Further in paragraph 5 of his letter, he submits that documents from C1 to C8, C13, C15 to C18, C20, C22, C24 to C28 and C1.4 are not available in the relied upon documents. This submission has been simply brushed aside without proper discussion and without taking note of the fact which was brought out by the learned AR today during the hearing that till then correspondence was being undertaken by the appellants and they had been provided documents on two occasions and this specific complaint about specific documents not being received had not been made till that date.

7. From the above it can be seen that it was the Commissioner's office who directed the assessee to go to DGCEI office and also required the Additional Director to conduct verification and send a confirmation. That being the position, it was not proper for the Commissioner to simply adjudicate the matter ignoring his own office request to the Additional Director for a report and ignoring the fact that learned counsel for the appellants had stated that the DGCEI office had asked the appellants to come after 15th April for the purpose of verification of documents/ supply of documents. Having written to the Additional Director to verify and confirm and having written to the assessee to go to the DGCEI office, passing an adjudication order without getting the complete reply/proper reply and without giving an opportunity to the appellants to go through the process of verification with DGCEI was not proper.

8. In view of the above observations very reluctantly we set aside the impugned order and remand the matter for fresh adjudication to the learned Commissioner with a hope that a proper well reasoned order will be passed. Needless to say we hope that appellants shall also extend cooperation. Then again we find that the appellants have been asking for paginated index and frankly we could not understand what exactly was the paginated index they wanted. However while the appellants want every page to be numbered, the Revenue seems to think that if annexure numbers have been given that would be enough. This is another confusion that has arisen. We hope there will be no such confusions in future."

On examination of the aforesaid findings of the CESTAT, the High Court noted –

+ Two things follow from the order of the Tribunal dated 08-9-2014. They are: (a) that though the ground relating to denial of opportunity to cross-examine witnesses was specifically raised, the Tribunal did not record any finding in paragraphs-7 and 8 of its order on this issue and (b) that in any case there was no positive direction by the Tribunal in its order dated 08-9-2014 to give an opportunity to the petitioner to cross-examine the witnesses.

+ Therefore, the first contention of the petitioner that the Adjudicating Authority failed to comply with the directions issued by the CESTAT in the order of remand, is wholly misconceived.

+ Unless the Tribunal has recorded a categorical finding that the refusal of the Adjudicating Authority to permit cross-examination was illegal or unless the Tribunal has directed the Adjudicating Authority to allow cross-examination, it is not open to the petitioner to contend that the order of the Tribunal was not complied with.

+ In any case if the petitioner thinks that the Adjudicating Authority failed to comply with the order of the CESTAT, they should have gone again before the CESTAT. After all, the order impugned in the writ petition is liable to be appealed against, to the very same CESTAT. Without going to the Tribunal and complaining that its order of remand was violated, the petitioner has chosen to come to this Court to complain that the order of the CESTAT was violated. Therefore, we have no hesitation in rejecting the second contention.

+ The request for cross-examination of the four witnesses was rejected by the Adjudicating Authority in paragraph-22 of the impugned order, for the reasons stated therein. Apart from the above factual grounds of rejection, the Adjudicating Authority also took a legal ground for rejection of the request for cross-examination. The legal ground was that as per the decision of the Supreme Court in Telestar Travels Pvt. Ltd. V. Special Director of Enforcement =  2013-TIOL-17-SC-FEMA, the rejection of the request for cross-examination need not always tantamount to violation of the principles of natural justice. [ M/s. Kanungo & Co. v. Collector of Customs, Calcutta =  2002-TIOL-252-SC-CUS-LB and  Surjeet Singh Chhabra v. Union of India = 2002-TIOL-158-SC-CUS refers.]

In the matter of cross-examination sought by the petitioner of the four persons, the High Court considered the reasons stated in paragraph-22.1 of the impugned order and further observed –

++ The first witness whom the petitioner wanted to cross-examine, was their own General Manager (Production). Admittedly he was an employee of the petitioner.

++ The petitioner never filed any statement or sworn affidavit of Mr. Pradeep Das, either retracting his earlier statement or attempting to explain the same. In fact all that Sri Pradeep Das said was that he was not aware about the purpose of receipt as well as despatch of certain consignments. We do not know how a cross-examination can be permitted in respect of something that a witness claimed to be unaware of.

++ Insofar as the remaining three witnesses whom the petitioner wanted to summon for cross-examination are concerned, the Adjudicating Authority has recorded categorically that their statements were supported by records maintained by their firms/companies and that the details of such records were also indicated in Annexures C-16, C-18 and C-21 to the show cause notice. The relevant details from the said records were also extracted in Annexures E-3.1, E-3.3 and E-4 to the show cause notice.

++ We are of the considered view that the factual grounds on which the Adjudicating Authority rejected the request for cross-examination, are cogent and convincing. The statements of third party witnesses were in fact shown to one of the Directors of the petitioner/Company by name Babulal Doshi and he is stated to have confirmed those statements.

Adverting to the apex court decisions cited by the adjudicating authority while rejecting the request for cross-examination, the High Court added –

+ It is clear that the right to cross-examine is not absolute at least insofar as the cases of this nature are concerned. If there are factual grounds to show that the denial of cross-examination was based upon the sound logic, then the order of adjudication cannot be interfered with.

+ We are not convinced that the impugned order could be set aside solely on the ground of denial of permission to cross-examine the witnesses.

The writ petition is dismissed.

However, the High Court clarified that it would be open to the petitioner to avail the alternative remedy of appeal before the appropriate authority and the period from the date of filing the instant petition before the High Court up to the date of issue of copy of the present order shall be excluded for computing either the period of limitation or the period of delay.

(See 2017-TIOL-2386-HC-AP-CX)