Raj Jaggi
When Statements Become the Foundation, Cross-Examination Becomes Essential
Natural justice is not an ornamental expression in tax law. It is the working discipline that gives legitimacy to adjudication. In every serious tax demand, particularly where allegations involve suppression, evasion, confiscation or penalty, the taxpayer must know the material used against him and must be given a fair opportunity to meet that material. The judgment of the Kerala High Court in Emas Gold and Diamonds LLP and Others v. Joint Commissioner, Office of the Joint Commissioner, Central GST and Central Excise, Kozhikode and Another, 2026-VIL-755-KER, Neutral Citation: 2026:KER:50129, W.P.(C) No.19986 of 2021, dated 08.07.2026, is a significant reminder of this principle.
The case arose from proceedings under Sections 74, 130 and 67 of the CGST Act, 2017. The petitioner firm was engaged in the wholesale jewellery business. The Department conducted a search on 11.12.2019 and seized gold ornaments, gold pieces, books, documents, computer systems and other material. The Chairman's statement was recorded, and he was arrested on 16.12.2019. According to the petitioners, statements of employees were recorded while the Chairman was under detention. These statements were relied upon in the show cause notice and later in the adjudication order.
The petitioners sought permission to cross-examine the persons whose statements were relied upon. That request was not decided separately before final adjudication. Instead, it was rejected in the final order itself. The adjudicating authority confirmed liability under Section 74 and ordered confiscation under Section 130. The petitioners approached the High Court, contending that the order violated natural justice and that the proceedings were also wrongly conducted as a block assessment for multiple tax years.
A Request for Cross-Examination Cannot Be Buried in the Final Order
One of the most important features of the judgment is the Court’s treatment of the timing of the cross-examination request. The petitioners had sought cross-examination in their replies to the show cause notice. If such a request is made before adjudication, the authority must consider it at the proper stage. If the request is rejected only in the final order, the taxpayer loses the effective opportunity to challenge that denial before the matter is decided.
This is not a minor procedural complaint. Cross-examination is meant to test the truthfulness, reliability and context of a statement. If the statement is relied upon to create tax liability, confiscation or penalty, the person affected must be allowed to test that statement, unless there are legally sound reasons to deny such an opportunity. If the request is rejected only after the order is passed, the taxpayer is placed in a difficult position. The adjudication has already concluded. The damage has already occurred.
The High Court found merit in this grievance. The petitioners were compelled to invoke writ jurisdiction because the denial of cross-examination was embedded in the final order. In such a situation, the ordinary appellate remedy may not be an adequate answer because the complaint goes to the fairness of the adjudication process itself.
Non-Retraction Is Not a Substitute for Truth Testing
The adjudicating authority rejected cross-examination, partly on the ground that the persons concerned had not retracted their statements. The High Court found this ground unsustainable. A witness’s failure to retract a statement does not render it immune from cross-examination. A statement may remain unretracted yet still require testing.
The purpose of cross-examination is not confined to cases where a witness has formally withdrawn or retracted a statement. It tests whether the statement was voluntary, accurate, complete, properly recorded and reliable. It may reveal pressure, misunderstanding, inconsistency, exaggeration, omission or lack of personal knowledge. It may also show that the statement has been read out of context.
This principle is especially important in investigation-driven tax cases. Statements may be recorded in stressful circumstances. Employees may not fully understand the legal implications of what they say. They may speak from limited knowledge of the business. They may also be influenced by the environment in which the statement is recorded. Therefore, where such statements are used as part of the foundation of demand, the taxpayer’s request for cross-examination cannot be rejected merely because the witness has not retracted.
Documents Cannot Always Replace Cross-Examination
The Department argued that there were documents supporting the allegations and that the statements were not the sole material. The High Court examined this argument carefully. It noted that the documents were treated as corroborative evidence supporting the statements. The adjudicating authority had not treated the documents as independently sufficient evidence, separate from the statements. A clear link existed between the statements and the documents.
This distinction is crucial. If the Department has independent documentary evidence which, by itself, proves the case, denial of cross-examination may stand on a different footing. But where documents are used mainly to support or corroborate statements, and the statements themselves form part of the foundation of the conclusion, cross-examination assumes importance. The taxpayer must be allowed to test the persons whose statements give meaning to the documents.
In commercial matters, documents do not always speak for themselves. A diary, stock note, loose sheet, computer entry or internal record may require explanation. The person who prepared, maintained or understood it may need to be examined. Without that process, the document may be misunderstood or overextended. The High Court recognised this concern while dealing with pocket diaries allegedly maintained by goldsmiths. Since the statements of those persons had not been recorded, the Court observed that the documents could be treated as relevant evidence only if properly produced or proved through appropriate persons.
Bias Cannot Be Presumed Before Cross-Examination Takes Place
Another reason given for denying cross-examination was that the persons sought to be cross-examined were employees or persons connected with the petitioner and might have been influenced over time. The adjudicating authority apprehended that cross-examination would be biased in favour of the petitioner. The High Court rejected this reasoning.
Bias cannot be presumed merely because the witness is connected with the taxpayer. Whether a witness is speaking truthfully or has been influenced can be assessed only after the witness is examined and cross-examined. It cannot be assumed in advance as a reason to deny cross-examination altogether. If such a reason is accepted, cross-examination of employees, accountants, managers or business associates would almost always be denied in tax cases. That would seriously undermine natural justice.
The proper approach is different. The authority may allow cross-examination and then evaluate the answers. If the witness changes position, gives evasive answers or appears influenced, the adjudicating authority can record reasons and assess credibility. But denying cross-examination on the assumption that it may favour the taxpayer reverses the correct legal sequence. The truthfulness of evidence must be tested before it is judged, not judged before it is tested.
Andaman Timber Remains the Controlling Natural Justice Signal
The petitioners relied on Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II, (2016) 15 SCC 785 = 2015-VIL-102-SC-CE. The Supreme Court held that denying cross-examination of witnesses whose statements formed the basis of the order was a serious flaw and violated the principles of natural justice. The Court observed that it was not for the adjudicating authority or Tribunal to presume what the assessee would or would not establish through cross-examination.
The Kerala High Court found the principle relevant. Where the Department relies on statements in the show cause notice and those statements influence the final conclusion, the affected person must normally be given an opportunity to cross-examine if such opportunity is requested. This does not mean cross-examination must be granted in every case merely because it is demanded. But if it is refused, the reasons must be sound, legally relevant and convincing.
The petitioners also relied on Commissioner of Central Excise v. Gujarat Cypromet Ltd., LAWS(GJH)-2013-3-383 = 2013-VIL-836-GUJ-CE; Sampad Narayan Mukherjee v. Union of India and Others, LAWS(CAL)-2019-2-4; and Shree Parvati Metals through Surendra Chauhan Proprietor v. Union of India, 2018 (1) TMI 208 = 2017-VIL-894-RAJ-CE. These decisions support the broader principle that where statements are relied upon against a taxpayer, cross-examination cannot be denied casually. The Kerala High Court followed the same natural justice line.
The Right Is Real, But Not Unlimited
The judgment also contains an important limitation. The High Court clarified that the petitioner cannot seek to cross-examine persons who are co-noticees and were themselves penalised for aiding or abetting. Compelling such persons to depose may require them to incriminate themselves. Therefore, the petitioner’s right to cross-examination is confined to persons who are not co-noticees in the proceedings.
This clarification balances the judgment. It does not create an unrestricted right to examine every person named in the record. The right depends on the role of the person, the nature of the statement, the reliance placed on it, and the fairness required in the facts. A person who is merely a witness stands on a different footing from a person who is also an accused or co-noticee in the same proceedings.
For senior professionals, this distinction is important when drafting replies and cross-examination requests. A request for cross-examination should not be vague or omnibus. It should identify the persons whose statements are relied upon, explain why their examination is necessary, show how the statements affect the proposed demand, and distinguish witnesses from co-noticees. A focused request is more likely to receive serious consideration.
Block Assessment Cannot Replace Tax-Period Discipline
The second important issue concerned the manner of assessment. The petitioners argued that proceedings under Section 74 were initiated as a block assessment for multiple assessment years. The contention was that GST law contemplates assessment with reference to tax periods, not a composite block assessment covering several years together.
The High Court accepted this contention, referring to its earlier decisions in Joint Commissioner (Intelligence & Enforcement) v. M/s Lakshmi Mobile Accessories, 2025 KHC OnLine 149 = 2025-VIL-143-KER, and Tharayil Medicals (M/s.), Thrissur v. Deputy Commissioner, Thrissur, 2025 KHC OnLine 467 = 2025-VIL-356-KER . In those cases, the Court observed that a composite notice for multiple assessment years while completing assessment under Section 74 is not legally sustainable.
This issue is extremely important in GST litigation. Section 74 is a serious provision. It applies where tax is not paid or short paid, or ITC is wrongly availed or utilised, by reason of fraud, wilful misstatement or suppression of facts with intent to evade tax. Such allegations require year-wise and period-wise clarity. The taxpayer must know the tax period, the transaction, the allegation, the computation and the evidence. A broad block assessment may blur these requirements.
Year-Wise Clarity Protects Both Revenue and Taxpayer
The tax-period discipline under GST is not merely a drafting preference. Returns are filed for tax periods. Liability is reported period-wise. ITC is availed and utilised through periodic returns and ledgers. Limitation also operates with reference to the financial year or relevant period. Therefore, when a demand covers more than one year, the notice and order must enable the taxpayer to understand the period-wise basis of the demand.
A composite block assessment may create several problems. The taxpayer may not know which transaction belongs to which period. Limitation may differ from year to year. The facts may also differ. A finding of suppression for one period may not automatically apply to another. Computation of tax, interest and penalty must be clear for each period. If all years are clubbed together without adequate segregation, the proceeding becomes vulnerable.
At the same time, this does not mean that the Department can never investigate a pattern across years. Investigation may reveal recurring conduct. Common evidence may be gathered. But when the matter moves to statutory adjudication, the demand must respect the structure of the Act. The authority must issue proper notices and pass orders consistent with tax-period requirements. The High Court therefore directed fresh proceedings after issuing separate notices for separate assessment years.
Writ Jurisdiction Was Properly Invoked
The Department argued that the petitioners should have used the statutory appeal. Ordinarily, High Courts do not interfere where an effective appellate remedy is available. However, this rule is not absolute. Writ jurisdiction may still be invoked where there is a violation of natural justice, lack of jurisdiction, or a fundamental procedural defect.
Here, the challenge was not merely to the tax amount or appreciation of evidence. The petitioners complained of denial of cross-examination of relied-upon witnesses and also challenged the block assessment structure. These objections went to the fairness and legality of the process itself. Therefore, the High Court examined the matter under Article 226, without deciding the tax liability on merits, and remanded the case for fresh lawful adjudication.
Fresh Proceedings Must Begin on a Cleaner Foundation
The High Court quashed Ext.P4 and directed the Department to initiate fresh proceedings by issuing separate notices for separate assessment years. The petitioners must be given a proper hearing, and their request for examination or cross-examination of witnesses must be considered afresh. The same reasons earlier used for rejection cannot be repeated.
The merits of the demand were left open. Since the writ petition had remained pending from 2021, the relevant period was directed to be excluded while computing the time for completing fresh proceedings. Thus, the Department may proceed again, but only through a year-wise and procedurally fair adjudication.
A Large Demand Cannot Justify a Weak Process
Emas Gold and Diamonds LLP brings together two important GST principles. First, when witness statements form the foundation of demand, cross-examination cannot be denied on weak grounds such as non-retraction, assumed bias or a general reference to corroborative documents. Secondly, proceedings under Section 74 must respect separate tax periods and cannot casually proceed as a block assessment for multiple years.
For officers, the ruling reinforces that strong cases require strong procedure. Statements must be fairly tested, documents must be properly proved, and multi-year demands must be structured year-wise. For taxpayers and professionals, it highlights the need to raise focused objections at the right stage, especially where relied-upon statements, unclear documents or clubbed tax periods are involved.
The core message is clear: GST adjudication may be evidence-heavy, but evidence must still be tested through a lawful process. A large demand cannot justify an unfair route.
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