GST Order Set Aside for Denying Cross-Examination

1.Background of the Case

A business entity named Paper Trade Links received a demand and penalty order from the Madhya Pradesh GST Department. This order was based heavily on statements given by certain witnesses during the department’s investigation.

The taxpayer, however, claimed that:

He had no opportunity to cross-examine those witnesses.

His formal application to question those witnesses was not even considered.

The entire case was built upon statements he could not challenge.

2.What Went Wrong?

The tax authority denied cross-examination, arguing that:

It would delay the proceedings.

The statements given were reliable under Section 70 of the CGST Act.

They had formed an internal view that the case was strong enough to proceed without allowing the taxpayer’s request.

This denial was challenged by the taxpayer through a writ petition, claiming a violation of the principles of natural justice.

3.What the High Court Said

The High Court strongly sided with the taxpayer and made the following key points:

1. Cross-Examination is a Fundamental Right

If any adverse statements are being used against a person, that person must be given a fair chance to question (cross-examine) those witnesses. This is a well-settled principle of natural justice and is also supported by earlier judgments of the Supreme Court, such as:

Ayaaubkhan Noorkhan Pathan v. State of Maharashtra (2012)

2. Procedural Delays Are No Excuse

The court rejected the argument that cross-examination would slow down the process. Justice cannot be sacrificed in the name of speed. Denying cross-examination on such a basis is legally unacceptable.

3. Violation of Natural Justice Invalidates the Order

Since the taxpayer’s right to fair hearing was ignored, the order passed by the department is invalid (vitiated). Any decision made without following proper procedure is bound to be struck down.

4.What the Court Ordered

The GST demand order was set aside (cancelled).

The matter was sent back (remanded) to the tax authorities.

The taxpayer must now be allowed to:

Cross-examine the witnesses whose statements are being used.

Defend themselves fairly before any final decision is made.

If the Scrutiny Committee has already passed an order without allowing cross-examination, that order stands cancelled for violating natural justice.

5.What is “Natural Justice”?

“Natural justice” refers to basic legal rules that ensure fairness in decision-making. It includes:

The right to be heard (you must get a chance to explain your side).

The right to cross-examine (you can question those who give evidence against you).

No decision should be made behind your back.

In this case, these rights were denied.

6.Importance of the Ruling

This case is important because it sets a clear standard for tax officers:

Tax authorities cannot pass orders based only on internal inquiries and one-sided statements.

Taxpayers, even in GST matters, must be treated with basic procedural fairness.

If cross-examination is denied, any resulting order may be struck down in court.