Introduction
Cross-examination is a right that accrues to a person when a witness's statement is used against them in adjudication proceedings. The main objective of cross-examination is to challenge the accuracy, credibility, and reliability of the testimony provided by the witness. It flows from the concept of natural justice aimed at ensuring a fair and thorough examination of all evidence. It is well settled under law through various cases that any relied-upon documents ('RUD') or witness statements by the adjudicating authority in an adjudication proceeding will be supplied for verification/cross-examination. This is essential to prevent a violation of the principles of natural justice.
However, the main difference in RUD is that documentary evidence can be rebutted while filing a reply, but statements need to go through the test of genuineness and can only be challenged if an opportunity to cross-examine is given. Therefore, it can be construed that merely providing statements in the RUD is insufficient, and cross-examination is the only effective way to counter them.
As per the circular issued by the Central Board of Excise and Customs ('CBEC') about SCN, adjudication proceedings and recovery 1, a show-cause notice ('SCN') and the RUD in the SCN are required to be served on the assessee for the initiation of the adjudication process. Although the circular acknowledges the provision of the right to cross-examination, it does not specify the stage at which this right accrues. The right of cross-examination demanded after replying to the SCN comes under the principle of natural justice. It is not disputed that this right is valuable.
This article aims to deliberate on the accrual of this right at the different stages of adjudication– prior to the issuance of the SCN and before the reply to the SCN.
Prior to the issuance of the SCN
The right of cross-examination at this stage arises when the assessee is of the apprehension that an SCN will be issued to him, relying on certain statements taken during the search and/or through informal sources. The right of cross-examination, if demanded before the issuance of the SCN, will likely be denied as no adjudication has yet been initiated. The statements recorded are only in the due process of getting information, and the department may or may not rely on those statements to issue the SCN. Thus, the request may be deemed premature.
It is interesting to note that in the case of Mohammed Fariz & Company v. Commissioner of Customs2, it was observed that if the right of cross-examination is allowed at the earliest possible stage only, then it will only help the department in deciding whether to rely upon the statements of those witnesses or not in the adjudication proceedings further. It was further observed that the right of cross-examination can never be premature as the statements are already in the records and can be relied upon if it passes the test of genuineness. This decision relies on the findings of the Apex Court in the case of Andaman Timber Industries v. Commissioner of Central Excise3, where it was observed that not allowing an assessee to cross-examine a person whose statement is made the basis of an order is a serious flaw which makes the order a nullity since it amounted to a violation of principles of natural justice.
However, the Relevancy of Statements provision under s. 136 of the Central Goods and Service Tax Act, 2017, and s. 138B of the Customs Act, 1962 allows the statements to be admissible in case of contingencies like death or non-availability of the maker of the statements. The above provisions may cause prejudice to an assessee if the maker of a statement is not available for cross-examination during proceedings at a later stage due to any reason.
From the conjoint reading of the cases and the provisions, it can be comprehended that the accrual of the right at an earlier stage will not disadvantage either the department or the assessee and avoid any adverse effect that may arise to the assessee in further stages of the proceedings in case of contingencies like death or unavailability of the maker of the statement.
Although cross-examination is generally not automatic at this stage, it will only aid the proceedings if allowed. The opportunity given to the assessee at this stage to cross-examine any witness can only remove inconsistencies and test the genuineness of the statements without causing any adverse impact on the department in the adjudication proceedings. However, it is to be understood that cross-examination at this stage will likely not be allowed as the statements recorded are not yet RUD used in the adjudication proceedings.
Before replying to the SCN
The right of cross-examination at this stage arises when an assessee is served an SCN that relies on statements of certain people. The right demanded after the SCN is issued but before filing a reply to the SCN has been deliberated upon in many cases.
The observation of the High Court of Allahabad in the case of Commissioner of Central Excise v. Parmarth Iron Pvt. Ltd.5 is noteworthy. The court observed that an SCN is issued based on available uncontested material. At the stage of issuance of an SCN, there is no adjudication, which is only a step in the adjudication process. Thus, it was held that the assessee has no right to cross-examination before the adjudication process has commenced.
The decision of Parmarth Iron (supra) was relied on in Kanpur Cigarettes v. Union of India,5 and Prakash Raghunath Autade v. Union of India6, and it was observed in both cases that any statement of the witness recorded prior to the reply to the SCN does not result in accrual of the right of cross-examination of those witnesses. The High Court of Bombay further observed in Prakash Raghunath Autade's case (supra) that the stage prior to the reply to the SCN could not be regarded as an inquiry or proceeding. Therefore, there is no right of cross-examination accrued.
The above cases show that the courts do not allow cross-examination before replying to the SCN, as the issuance of the SCN is not considered part of the adjudication proceeding. Also, the cases make clear that the RUD, including statements, must be supplied to prepare the reply to the SCN.
Notwithstanding the above, the CBEC circular (supra) states that the SCN marks the start of adjudication proceedings. Additionally, the decision in Md. Fariz (supra) suggests that providing cross-examination at the earliest possible stage can eliminate inconsistencies, saving time and costs. The assessee will not be subject to any loss due to the applicability of the provision of relevancy of statements.
Further, suppose the RUD, including the statements, must be provided to the assessee before making a reply to the SCN so that the reply can be comprehensive, clear, and without any inconsistencies. In that case, the accrual of the right of cross-examination at this stage will only aid the adjudication process in being completed in a time-bound manner.
The author believes that the right of cross-examination at this stage is necessary and should be automatic, as it will only aid the department and the assessee in testing the veracity of the relied-upon statements.
Conclusion
The popular adage a stitch in time saves nine applies equally to adjudication proceedings. The supply of RUD and witness statements is one of the basic requirements for preparing a reply to the SCN, as these documents help the noticee challenge the contention made in the SCN. Failing to supply these documents would violate the principles of natural justice. Furthermore, when an assessee has been called upon to answer the accusation made against him, it is his right to defend himself reasonably at the earliest opportunity afforded to him.
In the author's opinion, the supply of RUD and the opportunity for cross-examination should be available to the assessee to prepare the reply to the SCN. Further, the right available with the assessee for cross-examining a witness at an earlier stage that includes the stage at which SCN is yet to be issued would only help the department to arrive at the right conclusion as to whether the statements have to be relied upon in the adjudication proceedings or not as the statements go through the test of genuineness. The veracity of the statements of witnesses, if tested at the earliest possible stage, only saves time for both parties, and it can never be premature as the statements are already in files/records and must be tested in the future in any case if it is to be used as evidence. The right provided at the earliest stage saves the assessee from any loss due to the application of provisions relating to the relevancy of statements.
Footnotes
1. Circular No. 1053/02/2017-CX.
2. [2019 (369) E.L.T. 218 (Ker.)].
3. 2015 (324) E.L.T. 641 (S.C.)].
4. 2010 (260) E.L.T. 514 (All.).
5. 2016 (344) E.L.T. 82 (All.).
6. 2022 (380) E.L.T. 264 (Bom.).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.