Right To Cross-Examination Cannot Be Denied Over Unretracted GST Statements: Kerala High Court

The Kerala High Court on 8 July held that GST authorities cannot reject a taxpayer's request to cross-examine witnesses merely because the witnesses have not retracted their earlier statements, observing that cross-examination is necessary to test the truthfulness of evidence relied upon during adjudication.

Justice A.A. Ziyad Rahman passed the order while allowing the writ petition filed by Emas Gold and Diamonds LLP against a GST adjudication order passed following an investigation by the Directorate General of GST Intelligence (DGGI). He held:

“a clear link is established between the statements of the persons concerned and the documents relied upon by the respondents in the course of adjudication. This demonstrates that the adjudicating authority did not assess the evidentiary value of the documents independently. Instead, the documents were treated merely as corroborative evidence, lending support to the statements relied upon during the adjudication process.”

The dispute arose from a show cause notice issued to Emas Gold and Diamonds LLP alleging GST irregularities for multiple assessment years. During the adjudication proceedings, the company sought permission to cross-examine persons whose statements were relied upon by the Department. The adjudicating authority rejected the request, stating that the witnesses had not withdrawn their statements, their statements were supported by documentary evidence, and some of the witnesses were employees of the company.

The High Court rejected the reasoning and held that the fact that a witness has not retracted a statement is not relevant while deciding whether cross-examination should be allowed. It observed that cross-examination enables a noticee to test the veracity of a witness and challenge the evidence relied upon by the Department. It held that such an opportunity cannot be denied merely because the witness continues to support the earlier statement.

The Bench further noted that although the Department claimed to rely on documentary evidence, the documents were only treated as corroborative material supporting the statements of the witnesses. Since the statements formed the basis of the adjudication, the petitioner was entitled to cross-examine the witnesses. It also rejected the adjudicating authority's concern that allowing cross-examination of employees would result in biased testimony. It held that such assumptions cannot justify denial of the opportunity, as the evidentiary value of answers obtained during cross-examination can only be assessed after the process is completed.

Further, Justice Rahman found merit in Emas Gold and Diamonds LLP's objection to the reliance placed on pocket diaries allegedly maintained by goldsmiths. He observed that such documents cannot be relied upon as evidence unless they are proved through the persons who prepared or maintained them, especially when no statements of those persons were recorded.

Accordingly, the High Court quashed the adjudication order and directed the GST authorities to initiate fresh proceedings by issuing separate notices for each assessment year. It directed the authorities to reconsider the company's request for examination and cross-examination of witnesses without relying on the earlier grounds for rejection and complete the adjudication after providing a proper opportunity of hearing.

For Petitioner: K. Srikumar, Senior Advocate and Ammu Charles and K. Manoj Chandran, Advocates

For Respondent: Sreelal N. Warrier, Advocate