Denial of Cross-Examination Vitiates GST Proceedings – Reliance on Third-Party Statements Impermissible Without Opportunity- Rules Karnataka High Court
Date & Year of Judgment
30 October 2025
The judgment reinforces that reliance on third-party statements without granting cross-examination strikes at the root of natural justice and invalidates the adjudication.
Case Reference
M/s JSW Steel Limited Vs The Joint Commissioner of Central Tax and Others
Writ Petition No 12061 of 2025
Before the Karnataka High Court
1. Main Issue Involved
Whether proceedings under GST (including Section 74 proceedings) can be sustained when:
The adjudicating authority relies upon statements of suppliers/transporters/third parties,
But denies the assessee an opportunity to cross-examine those persons.
The Court examined whether denial of cross-examination is a procedural irregularity or a fatal jurisdictional defect.
2. Sections and Rules Discussed
Section 74, CGST/UPGST Act
Section 75(4) – Opportunity of hearing
Principles of natural justice
Article 14 (Fair procedure doctrine)
Supreme Court in:
Andaman Timber Industries v. CCE
State of Kerala v. K.T. Shaduli Yusuff
Hindustan Tobacco Company
The Court applied long-settled Supreme Court doctrine that denial of cross-examination amounts to violation of natural justice.
3. Facts of the Case
Proceedings initiated alleging wrongful ITC and bogus transactions.
Department relied upon statements of third parties (supplier/transporters/other entities).
Petitioner specifically sought opportunity to cross-examine those persons.
Adjudicating authority denied the request.
Order passed confirming tax, interest and penalty.
The demand was substantially based on statements recorded behind the assessee’s back.
4. Petitioner’s Submissions
Adjudication based on third-party statements.
Cross-examination specifically requested but denied.
Such denial violates principles of natural justice.
Relied on Andaman Timber Industries, where Supreme Court held that denial of cross-examination makes order unsustainable.
The petitioner framed the issue as violation of fundamental procedural fairness rather than factual dispute.
5. Department’s Submissions
Cross-examination not necessary.
Material available on record sufficient.
Adjudicating authority has discretion in procedural matters.
The department treated cross-examination as discretionary rather than mandatory when statements are relied upon.
6. Analysis and Findings of the Court
The Court held:
A. Cross-Examination – Not a Formality
Where adjudication relies upon statements of third parties:
Assessee must be allowed to cross-examine those witnesses.
Failure to grant such opportunity renders proceedings violative of natural justice.
B. Reliance on Supreme Court Precedents
The Court relied on:
Andaman Timber Industries – Denial of cross-examination is serious flaw and makes order nullity.
K.T. Shaduli Yusuff – Right to cross-examine is part of reasonable opportunity.
C. Distinction Between Corroborative and Foundational Evidence
The Court observed:
If third-party statement is merely corroborative, cross-examination may not be essential.
But where statement forms basis of demand, cross-examination becomes indispensable.
In the present case, statements formed foundation of demand.
D. Effect on Proceedings
Denial of cross-examination is not curable irregularity — it strikes at root of adjudication.
The Court clarified that once third-party statements form the basis of demand, cross-examination becomes a mandatory procedural safeguard.
7. Final Judgment / Operative Directions
Impugned order quashed.
Matter remanded to adjudicating authority.
Direction to grant opportunity of cross-examination.
Fresh order to be passed after due compliance.
The Court restored procedural fairness by mandating cross-examination before any adverse determination.
8. Similar / Related Judgments
Supporting Jurisprudence
Andaman Timber Industries – Supreme Court
K.T. Shaduli Yusuff – Supreme Court
Multiple GST High Court decisions holding denial of cross-examination vitiates proceedings.
Distinguishing Situation
Where adjudication based on documentary evidence and not statements, cross-examination may not be mandatory.
The right to cross-examine arises only when statements are relied upon as substantive evidence.
9. CA BTA Insights (Professional Takeaway)
This judgment is highly significant in defending:
Circular trading allegations based on supplier statements.
ITC denial cases relying on transporter statements.
Section 74 proceedings based on intelligence reports.
Cases where investigation statements form sole basis of demand.
Litigation Strategy:
Always request cross-examination in reply to SCN.
Record objection if denied.
Cite Andaman Timber Industries.
Argue violation of natural justice at appellate/writ stage.
The ruling strengthens procedural defence strategy — even where facts are contested, denial of cross-examination alone can invalidate the entire demand. Copy of the judgement is attached.