The Karnataka High Court in JSW Steel Limited v. Joint Commissioner of Central Tax & Ors. (W.P. No. 12061 of 2025, decided on 13 August 2025) dealt with a crucial question of natural justice in tax adjudication. The Court examined whether an order passed on the basis of statements recorded from third parties, without granting the assessee an opportunity to cross-examine such witnesses, could be sustained in law. Holding that denial of cross-examination strikes at the root of fair procedure, the Court set aside the impugned order and remitted the matter for fresh adjudication, thereby reaffirming the principle that justice must not only be done but must also appear to be done.
Case & Background
- The case is JSW Steel Limited vs. Joint Commissioner of Central Tax & Ors., W.P. No. 12061 of 2025.
- In the underlying proceedings, the tax (GST) authority recorded statements of representatives of L&T (a third party) during investigation, and thereafter relied upon those statements in the show-cause / adjudication to confirm demand and impose penalties on JSW Steel.
- JSW’s contention was that they were not given an opportunity to cross-examine the L&T representatives whose statements were being used against them, which, they argued, violated natural justice and caused prejudice.
Issues for the Court
- Whether it is permissible to rely on statements of third parties (not the assessee) in adjudication without giving the assessee an opportunity to cross-examine those third parties.
- Whether denial of cross-examination in such circumstances constitutes violation of principles of natural justice (audi alteram partem) and would vitiate the impugned order.
- Distinction (if any) between third-party statements and confessional statements or statements by the assessee (where precedents may have held otherwise).
Holding / Key Observations
- The High Court held that relying on statements of third parties without giving the assessee an opportunity to cross-examine is a violation of the principles of natural justice, and renders the impugned order legally unsustainable.
- The court observed that the adjudicating authority’s assumption that cross-examination was unnecessary (because statements were “voluntary”) is legally impermissible.
- The court emphasised that when statements of third parties are made a basis for adverse findings or demand/penalty, the affected party must be provided a chance to test the veracity, credibility, and correctness of those statements via cross-examination.
- The court distinguished this situation from cases like Surjeet Singh Chhabra vs. Union of India (or other precedents dealing with confessions or statements by the assessee) on the ground that third-party statements do not enjoy the same status, and the denial of cross-examination may cause material prejudice.
- The court applied the principle pari materia to Section 9D of the Central Excise Act (which is analogous in procedure to GST), which provides that statements recorded during investigation cannot be relied upon unless the maker is examined and cross-examined.
- The Karnataka HC set aside the impugned order and remitted the matter back to the adjudicating authority for fresh adjudication, with a direction to afford opportunity to cross-examine the persons whose statements were recorded and relied upon.
Legal Principles & Implications
- The judgment underscores that in quasi-judicial / adjudicatory proceedings (such as under the GST regime), principles of natural justice cannot be ignored merely because the statute does not explicitly prescribe cross-examination in every case, especially when third-party evidence is used.
- It reinforces that cross-examination is a procedural safeguard to test the reliability of evidence adverse to a party.
- The judgment clarifies that authorities cannot arbitrarily deny cross-examination by presuming that it “would not help” or is unnecessary; instead, they must allow the party to show how cross-examination might discredit or test the statements.
- The case affirms that where denial of cross-examination causes “irretrievable prejudice,” such orders are liable to be set aside.
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The decision draws from and aligns with Supreme Court jurisprudence (e.g. Andaman Timber Industries case) and other judicial pronouncements on fairness in adjudication.