The Central Excise and Service Tax Appellate Tribunal, Chandigarh Regional Bench, has reaffirmed that denying an assessee the opportunity to cross-examine material witnesses whose statements underpin a tax demand constitutes a fundamental violation of natural justice. This ruling, grounded in the mandatory provisions of Section 9D of the Central Excise Act, 1944, sets a critical precedent for all quasi-judicial proceedings under indirect tax laws.
Background & Facts
The Dispute
These nine appeals arise from identical allegations by the Directorate General of GST Intelligence (DGGI) that the appellants - manufacturers and traders in Punjab - fraudulently availed CENVAT credit on the basis of forged invoices issued by non-existent or non-operational manufacturing units in Delhi. The DGGI alleged that the four Delhi-based units - Citizen Steel Forge, Bhartam Industries, Glico Industries, and Universal Industries - had no manufacturing infrastructure, no electricity consumption, and no actual sales, yet issued invoices to the appellants to facilitate illicit input tax credit claims.
Key Facts
- The DGGI conducted searches at residential premises of Rohit Garg (Mandi Gobindgarh), Amit Goyal (Mandi Gobindgarh), and Robin Jain (Malerkotla) on 08.02.2018
- Statements were recorded from multiple individuals including Ramanpreet Singh Waraich (Proprietor, Universal Industries), Rishi Pal (landowner), Ravinder Bajaj (accountant, Kansal Sons Steels Ltd.), Vipin Kumar Kansal, and Pooja Kansal
- Show cause notices were issued to all nine appellants for the financial period December 2015 to March 2017
- The impugned orders confirmed demands ranging from Rs. 25,621 to Rs. 24,03,486 in central excise duty and penalties, based primarily on the recorded statements
- All appellants submitted written replies requesting cross-examination of the witnesses whose statements were relied upon
- The Commissioner (Appeals) rejected these requests, relying on Kanungo & Co. v. Collector of Customs (1983)
Procedural History
- 08.02.2018: DGGI conducts searches and records statements
- 2018 - 2023: Show cause notices issued to all appellants; replies filed with cross-examination requests
- 01.02.2024 to 04.10.2024: Various Order-in-Originals passed by Adjudicating Authority confirming demands
- 01.02.2024 to 04.10.2024: Commissioner (Appeals) confirms demands in all nine cases, rejecting cross-examination requests
- 2024: Appeals filed before CESTAT Chandigarh
- 22.04.2026: Hearing conducted before CESTAT
- 29.04.2026: Final Order passed
The Parties' Positions
Appellants: Argued that the reliance on untested statements without cross-examination violates Section 9D of the Central Excise Act and the principles of natural justice. Cited Jindal Drugs Pvt. Ltd. v. UOI (2016), Andaman Timber Industries (2015), and multiple CESTAT rulings.
Respondent (Revenue): Contended that documentary evidence (invoices, price lists, bank records) independently established fraud. Argued that cross-examination is not an absolute right and is discretionary under facts of each case. Relied on Century NF Castings and M/s Shiva Castings.
Relief Sought
The appellants sought setting aside of the impugned orders and remand to the Adjudicating Authority with directions to afford cross-examination of material witnesses.
The Legal Issue
Is the denial of cross-examination to an assessee, where the adjudicating authority relies on statements recorded during investigation under Section 9D of the Central Excise Act, 1944, a violation of natural justice and statutory procedure?
Arguments Presented
For the Appellant
The appellants contended that Section 9D(1)(b) mandates a two-step procedure before an investigation statement can be admitted as evidence: (1) the witness must be examined in person before the adjudicating authority, and (2) the authority must record a reasoned opinion that admitting the statement is in the interests of justice. They argued that the refusal to allow cross-examination after the statement was relied upon rendered the proceedings fundamentally unfair. They cited Jindal Drugs Pvt. Ltd. (P&H HC), Andaman Timber Industries (SC), and multiple CESTAT decisions that had previously remanded similar cases for failure to comply with Section 9D.
For the Respondent
The Revenue argued that the documentary trail - fake invoices, mismatched prices, absence of electricity bills, and non-existent manufacturing units - was sufficient to establish fraud. It contended that cross-examination would be redundant and dilatory, citing Century NF Castings and M/s Shiva Castings to support its position that the right to cross-examine is not absolute and must be balanced against procedural efficiency. It maintained that Kanungo & Co. remained applicable as the investigation predated Section 9D’s introduction.
The Court's Analysis
The Tribunal undertook a detailed analysis of Section 9D of the Central Excise Act, 1944, and its interaction with the principles of natural justice. It emphasized that the use of the word "shall" in Section 9D(1) renders the procedure mandatory, not discretionary.
"The rigour of this procedure is exempted only in a case in which one or more of the handicaps referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the Gazetted Central Excise Officer, unless and until he can legitimately invoke clause (a) of Section 9D(1)."
The Tribunal rejected the Revenue’s reliance on Kanungo & Co., noting that this 1983 judgment predates the insertion of Section 9D in 2005 and is therefore inapplicable. It affirmed the binding precedent of the Punjab & Haryana High Court in Jindal Drugs Pvt. Ltd., which held that failure to follow Section 9D(1)(b) renders the order legally unsustainable.
The Tribunal further cited Andaman Timber Industries (2015), where the Supreme Court held that denying cross-examination where the witness statement forms the basis of the order is a violation of natural justice. The Tribunal observed that the Adjudicating Authority had not only failed to record reasons for rejecting the cross-examination request but had also failed to consider whether any of the conditions under Section 9D(1)(a) applied.
"It was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above."
The Tribunal concluded that the Revenue’s reliance on documentary evidence alone was insufficient to override the statutory mandate of Section 9D. The statements of the Delhi-based witnesses were central to the case, and their credibility could only be tested through cross-examination.
The Verdict
The appeals are allowed by way of remand. The impugned orders dated 01.02.2024 to 04.10.2024 are set aside. The cases are remanded to the Adjudicating Authority to re-adjudicate the matters after affording the appellants a full opportunity to cross-examine the material witnesses whose statements were relied upon in the show cause notices and impugned orders. The Adjudicating Authority shall comply with the procedure under Section 9D of the Central Excise Act, 1944, and pass a reasoned order within three months of receipt of the certified copy of this order.
What This Means For Similar Cases
Cross-Examination Is Not Discretionary - It Is Statutorily Mandated
- Practitioners must now insist on compliance with Section 9D(1)(b) in every case where investigation statements are relied upon
- Any order that denies cross-examination without applying Section 9D(1)(a) or (b) is liable to be set aside
- The burden shifts to the Revenue to prove that one of the conditions under Section 9D(1)(a) applies before relying on out-of-court statements
Documentary Evidence Alone Cannot Substitute Procedural Compliance
- Even in cases of alleged fraud or fake invoices, the statutory procedure under Section 9D cannot be bypassed
- Price lists, bank records, or invoice patterns cannot substitute for testing the credibility of key witnesses
- Tribunals and courts will no longer accept "self-speaking documents" as a shield against natural justice violations
Timely and Specific Requests Are Critical
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A general request for cross-examination is insufficient; the request must specifically name the witnesses whose statements are relied upon
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The request must be made at the earliest opportunity and reiterated at every hearing
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Failure to press the request may be fatal in jurisdictions where judicial precedent is less settled
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The three-month deadline for re-adjudication imposes a strict timeline on Revenue authorities
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Practitioners should prepare for immediate filing of writ petitions if the authority fails to comply with the remand order
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This judgment applies equally to GST adjudications under Section 144 of the CGST Act, which mirrors Section 9D
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All pending cases involving reliance on DGGI or DGCEI statements must be reviewed for procedural compliance
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This ruling strengthens the position of taxpayers in high-value fraud investigations where witness credibility is central
