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16 Oct 2015

Not providing an opportunity to cross examine witness would make an order as null & void"

Recently, Hon’ble Supreme Court in the matter of Andaman Timber Industries vs, Commissioner of Central Excise, Kolkata-II (2015, 62 taxmann.com 3 SC), held that when statements of witnesses are made basis of demand, not allowing assessee to cross-examine witnesses, is a serious flaw which makes order nullity, as it amounts to violation of principles of natural justice.

In the impugned case, assesse who was engaged in manufacturing plywoods and related products in its factory at South Andamans was selling some of these products from the factory premises in South Andamans only to certain buyers. However, major portion of the products manufactured there were sold to other dealers from their numerous depots which were situated at different places in the country. While the respondent-Revenue in this case found that there was a lot of price difference between the goods sold at ex-factory and delivery basis in comparison with the goods which were sold to the buyers from their depots.

On an appeal filed to tribunal by the assesse on the grounds that price list of the assesse maintained at its depots should not be taken as the basis for the purpose of levy of excise duty, Tribunal rejected the appeal of the assesse on following grounds without granting the assesse an opportunity to cross examine the witnesses on whose basis demand has been approved by the adjudicating authority:-

The ex-factory sale was hardly 2 per cent and most of the sales, i.e., to the extent of 98 per cent, were from the depots of the assessee which are situated at other places and not at the place of factory, i.e., South Andamans.

Though the price at which sales were made ex-factory at South Andamans remains the same over a period of time as far as sales to depots are concerned, the price increased from time to time.

Hon’able Supreme Court on the said issue finally held that not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. Moreover, if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show-Cause Notice.