Nishad K.U. Vs Joint Commissioner (Kerala High Court)
The Kerala High Court, in the case of Nishad K.U. Vs Joint Commissioner, quashed a penalty order exceeding ₹9.40 crores issued under the CGST and SGST Acts, citing a breach of natural justice. The case centered on the petitioner’s plywood business, accused of fraudulent GST practices, including fake registrations and misuse of input tax credit. The petitioner had sought cross-examination of 20 individuals whose statements formed the basis of the allegations. Despite multiple requests and supporting affidavits, the adjudicating authority denied this opportunity, leading to the imposition of penalties and consequential interest.
The Court observed that the denial of cross-examination violated the principles of natural justice. It referred to Section 75(4) of the CGST Act, which mandates a hearing but does not explicitly mention cross-examination. However, the Court underscored that cross-examination is crucial when third-party statements are relied upon, barring impractical circumstances like unavailability of witnesses. Judicial precedents, such as Andaman Timber Industries v. Commissioner of Central Excise (2016) and State of Kerala v. K.T. Shaduli Yusuff Grocery Dealer (1977), emphasize that the denial of cross-examination renders an order a nullity when such statements form a substantive basis of adjudication.
The High Court noted that cross-examination ensures fairness by allowing the party to challenge the credibility of evidence. It criticized the adjudicating authority’s presumption that cross-examination would not affect the credibility of statements, deeming it legally impermissible. In Andaman Timber Industries, the Supreme Court highlighted that denying cross-examination of witnesses whose statements were pivotal violated natural justice. Similarly, in State of Kerala v. K.T. Shaduli Yusuff Grocery Dealer, it was held that tax authorities must adhere to natural justice principles even in quasi-judicial proceedings.
