GST Investigation Statement: Evidence or Mere Material?

A Recorded Statement Is Not Automatically Proof

Statements frequently play an important role in GST investigations. During an inquiry, the proper officer may summon directors, employees, suppliers, transporters, accountants, or other persons under Section 70 of the CGST Act, 2017, and record their statements. Such statements may subsequently form part of a show cause notice or an adjudication order and, in serious cases, may also be relied upon in prosecution proceedings under Section 132.

The real issue arises when a statement recorded during an investigation is treated as proof of the facts stated in it. A supplier may state that no goods were supplied, a transporter may deny movement of goods, or an employee may admit that invoices were issued without corresponding supplies. Such statements may undoubtedly provide important material for investigation, but their mere recording does not automatically establish the truth of the underlying allegations.

Section 136 addresses this important distinction. It specifies the circumstances in which a statement made and signed by a person, on appearance in response to a summons issued under Section 70, becomes relevant for proving the truth of its contents in a prosecution for an offence under the CGST Act. The provision therefore draws an important line between a statement collected during an investigation and evidence capable of proving the facts stated in it. Understanding this distinction is essential to appreciating the true scope of Section 136.

From Investigation under Section 70 to Evidence under Section 136

Sections 70 and 136 operate at different stages. Section 70 enables the proper officer to summon a person to give evidence or produce documents during an inquiry. Section 136 deals with a different question—when a statement already recorded under Section 70 can be used to prove the truth of the facts stated in it in a prosecution.

This distinction is important because statements recorded during investigation may serve several purposes. They may provide useful leads, explain transactions, identify other persons involved or even contain admissions. But material collected during investigation and evidence proving an allegation are not necessarily the same thing. A statement may assist the investigation without, by itself, establishing the truth of everything stated in it.

For example, suppose a supplier summoned under Section 70 states that invoices worth ₹1.50 crore were issued without actual supply of goods. The statement establishes that the supplier made such an assertion during investigation. Whether the goods were in fact never supplied is a separate question. When the prosecution seeks to rely upon the statement to prove that underlying fact, the requirements of Section 136 become relevant.

Section 136 is therefore not merely a provision enabling the Department to rely upon statements recorded during investigation. It also provides an important evidentiary safeguard by prescribing the circumstances in which such statements can be used to prove their contents in prosecution. This assumes greater significance because prosecution may expose a person not only to tax and penalty consequences but also to criminal liability.

The Statutory Conditions Must First Be Satisfied

Section 136 does not apply to every statement made before a GST officer. The person concerned must have made and signed the statement. It must have been made on appearance in response to a summons issued under Section 70. It must have been recorded during the course of an inquiry or proceeding under the CGST Act. Finally, it must be sought to be used to prove the truth of its contents in a prosecution for an offence under the Act.

These conditions merit attention because tax investigations often generate various forms of material. There may be oral explanations during a search, written replies to summons, statements recorded from employees, voluntary letters, emails or informal conversations. Section 136 specifically applies to a statement with the statutory characteristics set out in the provision.

For example, if an employee makes an oral remark during a search that certain purchases appear doubtful, and is subsequently summoned under Section 70 and gives a signed statement, the two communications do not necessarily stand on the same statutory footing. The latter clearly falls within the framework contemplated by Section 136, whereas the former cannot automatically be treated as a statement recorded pursuant to summons.

This is more than a technical distinction. Where a prosecution seeks to prove serious allegations through prior statements, the nature, source and statutory basis of the statement itself should be identified before considering its evidentiary effect.

The importance of complying with the statutory requirements governing the recording of a statement is also reflected in State v. Yakub Ahmed, 2000 (125) ELT 113 (Bom.) . In that case, the Bombay High Court declined to admit statements recorded under Section 108 of the Customs Act because the prosecution failed to establish that they had been recorded by a Gazetted Officer, as required by that provision. The decision reinforces the broader principle that where the statute prescribes conditions for recording or relying upon a statement, compliance with those conditions assumes evidentiary significance.

Section 136(a) - When the Maker of the Statement Is Unavailable

Clause (a) addresses exceptional circumstances in which the person who made the statement cannot ordinarily be produced before the Court. The provision recognises five situations: where the maker is dead, cannot be found, is incapable of giving evidence, has been kept out of the way by the adverse party, or cannot be produced without such delay or expense as the Court considers unreasonable.

The logic of the provision is one of necessity. The normal and preferable course is to have the person available so that his testimony can be examined in Court. But the law cannot insist on the impossible. If the witness has died, disappeared despite genuine efforts, or has become incapable of giving evidence, the earlier statement may become relevant because the best available form of evidence is no longer obtainable.

At the same time, the exceptional nature of clause (a) is important. Administrative inconvenience cannot be equated with statutory unavailability. A witness who is alive, traceable and capable of appearing does not become “unavailable” merely because producing him may require effort . The statutory conditions must actually exist, and where unreasonable delay or expense is relied upon, the provision itself assigns significance to the Court’s assessment of what is unreasonable in the circumstances.

Consider a transporter who was summoned during the investigation and stated that the vehicles mentioned in certain invoices were never used for the alleged movement of goods. Before the prosecution begins, the transporter dies. His examination in Court is obviously impossible, and clause (a) may therefore become relevant. But if the transporter is alive and his whereabouts are known, the prosecution cannot bypass the normal evidentiary route merely by saying that his production would be inconvenient.

Section 136(b) - The Normal Route When the Witness Is Available

Clause (b) addresses the ordinary situation where the person who made the statement is available. In such a case, the statutory scheme contemplates two elements. The maker must be examined as a witness before the Court, and the Court must, having regard to the circumstances, form an opinion that the earlier statement should be admitted in evidence in the interest of justice.

This is a significant safeguard. The evidentiary value of the statement is not determined exclusively by the officer who recorded it. Once prosecution begins, the Court becomes the gatekeeper. The witness is brought before the Court, his testimony is examined, and the earlier statement is considered in the context of the judicial process.

The importance of this mechanism becomes evident when one considers how statements are recorded during tax investigations. A witness may have limited knowledge of the transaction. He may have relied on what another employee told him. He may later explain that the statement was misunderstood or recorded incorrectly. He may admit that he had no personal knowledge of the particular supply. These possibilities can materially alter the weight of the earlier statement.

Suppose an accountant states during an investigation that certain invoices were issued without supply of goods. When examined in Court, however, he admits that he was dealing only with bookkeeping and had no role in the dispatch or receipt of goods. He further states that his earlier answer was based on information given by another employee. The earlier statement may then assume a very different evidentiary character. This illustrates why the law does not treat investigation statements and tested testimony as identical.

Cross-Examination Is Central Where the Statement Is Material

Where a statement is relied upon to establish an important fact, cross-examination may become crucial because it enables the affected party to test the witness’s knowledge, credibility and version of events. A witness may be asked how he obtained the information, whether he personally handled the transaction, whether he saw the documents, whether his statement was based on assumptions, and whether the contemporaneous records support what he said.

The Supreme Court’s decision in Andaman Timber Industries v. Commissioner of Central Excise, 2015 (324) ELT 641 (SC), remains important in this context. The adjudication order there relied on witness statements while cross-examination was denied. The Supreme Court treated the denial, in the circumstances of that case, as a serious violation of natural justice.

The same principle was applied by the Larger Bench of the CESTAT in J & J Precision Industries and Others v. Commissioner of Central Excise, Goa, 2015-VIL-547-CESTAT-MUM-CE-LB. The Tribunal set aside the impugned order and remanded the matter to the adjudicating authority, directing that an opportunity of cross-examination be provided in respect of persons whose statements had been relied upon by the Revenue. The decision reinforces the principle that where statements materially support the Revenue’s case, a reasonable opportunity to test such statements assumes considerable importance.

The broader principle is not that every statement in every tax proceeding automatically gives rise to an absolute right of cross-examination. The real question is whether the statement is material to the allegation and whether denial of an opportunity to test it causes prejudice. If the entire demand rests on a supplier's statement that no goods were ever supplied, while the taxpayer produces invoices, transport records, e-way bills, stock entries, and banking evidence, cross-examination of that supplier may go to the very root of the dispute.

By contrast, if the Department’s case is independently established through documentary and electronic evidence and the third-party statement merely confirms what is already proved, cross-examination may have less significance. The enquiry should therefore focus on materiality, dependence and prejudice rather than treating cross-examination as a mechanical ritual.

Retracted Statements Require Greater Evidentiary Caution

Statements made during tax investigations are often retracted. A person may later allege that the statement was obtained under pressure, inaccurately recorded, dictated, made in a misunderstanding, or given without appreciating its legal consequences. The Department may equally contend that the retraction is a later attempt to escape the effect of an earlier voluntary admission.

Neither the original statement nor the retraction should be treated as conclusive merely because it exists. The surrounding circumstances are important. The timing of the retraction, the explanation for withdrawing the earlier statement, the contemporaneous records, and the existence of independent corroboration all need to be examined.

The Supreme Court’s decision in Vinod Solanki v. Union of India, (2009) 233 ELT 157 (SC), though arising under another statutory regime, remains useful for the broader evidentiary principle concerning retracted statements. Where serious consequences are sought to be founded upon a disputed admission or confession, the circumstances in which it was made and the supporting material assume considerable importance.

Suppose an employee states during an investigation that ITC was availed on invoices without receipt of goods, but retracts the statement three days later. The taxpayer produces e-way bills, lorry receipts, weighment slips, stock records, and proof of payment through banking channels. The controversy cannot reasonably be decided merely by reproducing the original statement in the adjudication order or prosecution complaint. The statement has to be examined along with the objective evidence.

Conversely, where the original statement is supported by independent evidence showing absence of stock, fictitious vehicle numbers, circular movement of funds, and non-existent transport records, a bare retraction may carry little weight. The real question is not merely whether the statement was retracted, but whether the evidentiary record supports or contradicts it.

Corroboration Often Determines the Strength of the Case

A statement rarely exists in an evidentiary vacuum. Its real strength usually depends on whether independent material corroborates it.

This principle has long been recognised in indirect tax jurisprudence. In Takshila Spinners v. Commissioner of Central Excise, 2001 (131) ELT 568 (Tribunal), the Tribunal considered the effect of relying on witness statements when cross-examination had not been afforded and corroboration was lacking. The broader lesson remains relevant: a serious demand should not ordinarily stand merely on an isolated and untested statement when the surrounding evidence points in another direction.

Consider two situations. In the first, a supplier states that no goods were supplied. The investigation independently reveals that he had no stock, no transport records existed, the vehicle numbers were fictitious, and the funds received were returned through a circular banking trail. In such a case, the statement forms part of a larger evidentiary chain.

In the second situation, the same supplier makes the same statement, but the recipient produces e-way bills, transport receipts, weighment slips, stock records, banking evidence, and proof of subsequent sale of the goods. If the Department has no material other than the supplier’s disputed statement, the statement’s evidentiary significance becomes far more vulnerable.

Thus, corroboration does not merely strengthen a statement; in many cases, it determines whether the statement can sustain the allegation at all.

Pre-GST Jurisprudence - Useful but Not Identical

Section 136 closely resembles Section 9D of the Central Excise Act, 1944. Accordingly, earlier decisions such as G-Tech Industries v. Union of India, 2016 (339) ELT 209 (P&H) and J&K Cigarettes Ltd. v. Collector of Central Excise, 2009 (242) ELT 189 (Del) remain useful for understanding the importance of procedural safeguards before statements recorded during an investigation are relied upon as substantive evidence. These decisions broadly emphasise that the statutory conditions for relying on such statements must be duly satisfied.

However, an important difference must be borne in mind. Section 9D(2) specifically extended the principles of Section 9D to proceedings other than those before a Court, whereas Section 136 of the CGST Act contains no similar provision. The earli

Section 136 Directly Applies to Prosecution

Section 136 expressly deals with the use of statements for proving the truth of their contents “in any prosecution for an offence under this Act.” Its direct statutory application is therefore to prosecution and should not automatically be extended to adjudication proceedings under Sections 73 or 74 or 74A.

This does not mean that disputed statements can be freely relied upon in adjudication. Where a demand substantially rests upon a third-party statement, denial of a reasonable opportunity to test that statement may still raise an issue of natural justice, particularly where the taxpayer disputes its correctness and seeks cross-examination. The legal basis in such a case, however, would primarily be fair hearing and natural justice rather than Section 136 itself.

The Larger Principle Emerging from Section 136

Section 136 reflects a broader principle of evidentiary fairness: material collected during an investigation does not automatically become proof merely because a statutory authority has recorded it. A statement may be important and may even contain a significant admission, but where serious consequences are sought to be founded on its contents, its evidentiary value must be tested in accordance with law.