Joint Commissioner Vs Nishad K.U. (Kerala High Court)

Kerala High Court has affirmed the crucial role of natural justice, including the right to cross-examination, in proceedings under the Central Goods and Services Tax (CGST) Act, 2017. In a significant intra-court appeal, Joint Commissioner Vs. Nishad K.U., the division bench upheld a single judge’s decision that denied cross-examination rights constituted a violation of natural justice, thereby rendering the tax and penalty order of over Rs. 9.40 Crores invalid.The case originated from proceedings initiated under Section 74(9) of the CGST Act against Nishad K.U., where a substantial tax and penalty were imposed. Nishad K.U. approached the writ court, bypassing the alternate remedy, on the grounds of a serious infraction of natural justice. The core of his contention was the authorities’ refusal to allow him to cross-examine individuals whose statements were relied upon to impose the penalty.The appellants, representing the tax authorities, argued that the CGST Act does not explicitly mandate granting cross-examination opportunities. They contended that the learned Single Judge erred by relying on the Supreme Court’s decision in Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II (2016), asserting that it did not consider earlier binding three-judge bench decisions in Kanungo & Co. v. Collector of Customs, Calcutta (1983) and Surjeet Singh Chhabra v. Union of India (1997), which, according to them, indicated no legal requirement for such an opportunity.However, the counsel for Nishad K.U. countered that even in the absence of a specific provision in the CGST Act, the principles of natural justice must be read into the statute, and any violation thereof would vitiate the proceedings.Maintainability of Writ Petition:The High Court first addressed the maintainability of the writ petition despite the availability of an alternate remedy. Citing the Supreme Court’s ruling in Commissioner of Income Tax & Ors v. Chhabil Dass Agarwal (2014), the court reiterated that writ petitions can be entertained in exceptional cases, particularly when an order is passed in total violation of the principles of natural justice. Given that the writ petition in this case alleged precisely such a violation – the denial of cross-examination – the court found it perfectly maintainable.Cross-Examination and Natural Justice:The crux of the appeal revolved around whether the CGST Act implicitly requires providing an opportunity for cross-examination. The court meticulously analyzed Section 74 of the CGST Act, which outlines the procedure for determining tax liabilities due to fraud, misstatement, or suppression of facts. While acknowledging the absence of an express provision for cross-examination, the court disagreed with the appellants’ assertion that this absolved the proper officer from extending such a right.The High Court distinguished the Kanungo & Co. precedent, heavily relied upon by the appellants. It noted that the Kanungo & Co. decision was rendered in the context of the repealed Sea Customs Act, 1878. The subsequent Customs Act, 1962, which replaced it, includes a provision for a “hearing” under Section 122, thereby not excluding the principles of natural justice. The court emphasized that the applicability of natural justice principles must be construed within the specific context of the governing enactment.The court observed that the entire basis for the tentative finding of guilt against Nishad K.U. rested on statements recorded from third parties by the proper officer. To make an effective representation, the assessee needed to understand and challenge the evidence used against him, making the opportunity for cross-examination imperative.Judicial Precedents Reinforcing Natural Justice:The judgment extensively cited several Supreme Court and High Court decisions to underscore the foundational importance of natural justice in quasi-judicial proceedings:Conclusion:The Kerala High Court firmly rejected the appellants’ argument that natural justice principles need not be followed in CGST Act adjudication. Drawing upon established Supreme Court precedents, particularly Tulsiram Patel and Krishnadatt Awasthy, the court concluded that extending an opportunity for cross-examination in Section 74(9) proceedings under the CGST Act is an “integral part of the principles of natural justice,” and its violation renders the proceedings void.However, the court also clarified that the right to cross-examination is not absolute and does not extend to all witnesses. Specifically, the plea to cross-examine co-noticees in the proceedings cannot be accepted. In such instances, the assessee can only request copies of the replies submitted by the co-noticees.Consequently, the High Court dismissed the appeal, declining to interfere with the learned Single Judge’s judgment that set aside the impugned order, thereby reaffirming the primacy of natural justice in tax adjudication under the CGST Act. The ruling underscores the judiciary’s commitment to procedural fairness even in the absence of explicit statutory provisions.