Furnishing of documents at show cause notice stage

PJ/Case Laws/2010-11/1051

Case: Commissioner of Central Excise, Meerut-I v/s Parmarth Iron Pvt Ltd

Citation: 2010 (260) ELT 514 (All)

Issue:- The relied upon document not clear in CD of relied upon document has to be provided in hard copy by the department. The cross examination of witness sought by notice is necessary for adjudication.

Brief Facts:- Search and seizure operations were conducted at factory and office premises of respondent-assessee. Several documents and records were seized and statements of several witnesses were recorded including the supplier of raw materials and buyers of finished products.

The Director General of Central Excise Intelligence (DGCEI) in a letter asked respondent to make arrangements for photocopying the statutory records and soft copy of the data in computers concerning accounted sale and purchase seized from their factory. Respondent requested for being supplied the photocopies.

Thereafter, show cause notice was issued alleging evasion of duty and proposed imposition of penalty with demand of duty evaded with interest. A list of 293 documents were relied upon by the Department.

Respondent filed application before the Commissioner that hard copies of the relied upon documents were not supplied inspite of specific requests and they needed the said documents for preparing their reply. Specific prayer was made for providing the copies of relied upon documents and non-relied upon documents.

Revenue passed an order observing therein that respondent had a right to be provided with copies of the relied upon documents to make proper representation and that had been met by providing a CD containing the said documents. It was further observed that in these circumstances, the request for hard copies of all the voluminous documents appears to be unreasonable and made only with an intention of delaying the adjudication proceedings.

Respondent thereafter filed 2 applications – one for supply of documents and other for seeking cross-examination of the persons whose statements have been relied upon by the Department. Respondent submitted that the Revenue vide a letter has supplied various documents to various persons and fixed the date for final hearing. However, neither the copies of the documents were provided nor the respondent was allowed to cross-examine the persons mentioned in their application. On the date of hearing, respondent were asked to file reply within One week, but neither cross-examination was allowed nor the photocopies of the documents supplied.

Respondent therefore, filed writ petition and annexed the show cause notice wherein it was stated that DGCEI had all the documents and the same could be inspected on any working day during office hours.

The learned Single Judge of the High Court issued a direction that it is obligatory on the part of Revenue to return the non-relied upon documents to the respondent-assessee. It was further directed to supply the relied upon documents or their copies to the respondent. The respondent was also permitted to inspect the original documents and the materials sought to be used against him during the proceedings. Opportunity of cross-examination was also extended to the respondent.

Revenue has filed appeal raising the following substantial questions of law:

Whether before reply to show cause notice was filed, is an assessee entitled to cross-examine the witnesses whose statements were recorded, relied upon and referred to in the show cause notice?
Would giving a CD containing documents relied upon by the Department be sufficient or is it mandatory that hard copies be given and/or the copies printed by respondents at the cost of the appellants?

Appellant’s Contentions:- Revenue relied upon the Adjudication Manual especially Paragraph 9A which provides for supply of copies of documents in departmental proceedings. Reliance was placed on judgment given in Sanghi Textile Processors (P) Ltd v/s Collector of Central Excise [1993 (65) ELT 357 (SC)] wherein the question arose that ‘who is to bear the expenses involved in taking out photostats’. Reference was made to Circular dated 27.07.2000.

Reliance was placed on judgments given inInternational Electron Devices Ltd v/d Union of India [2010 (252) ELT 352 (All)], Prestige Paints v/s Commissioner of Customs and Central Excise, Kanpur [2004 (173) ELT 6 (All)], J & K Cigarettes Ltd v/s Collector of Central Excise [2009 (242) ELT 189 (Del)].

Respondent’s Contentions:- Respondent relied upon judgment given in Kellog India Pvt Ltd v/s Union of India [2006 (193) ELT 385 (Bom)], Arya Abhushan Bhandar v/s Union of India [2002 (143) ELT 25 (SC)], Sunder Ispat Limited v/s Commissioner of Cus & C. Ex, Hyderabad [2002 (141) ELT 24 (AP)], Lakshman Exports Limited v/s Collector of Central Excise [2002 (143) ELT 21 (SC)].

Reasoning of Judgment:- The High Court considered all the judgments relied upon by both the sides and various other judgments on the matter of cross-examination at the stage of adjudication.

The High Court held that it is well settled that it is the right of an assessee in the event the Revenue seeks to rely on the statements of witnesses recorded by it and whose statements are sought to be relied upon at the stage of adjudication to make available the said witnesses for cross-examination so that it could be established whether the statements recorded from the said witnesses have been voluntarily given and/or are relevant for the issue or based on personal knowledge or hearsay and the like. The object, being that a Tribunal or Court conducting a proceeding either before the Court or quasi judicial tribunal in adjudicating, must have the true evidence and shift the evidence to weed out the chaff from the grain. Another reason being, to satisfy itself that the person whose statement was recorded had made it voluntarily and based on his personal knowledge or legal records which can come out in cross-examination. This is to ensure the Court or Tribunal or the authority conducting the proceeding arrives at the correct conclusion based on tested evidence before it. The issue also is no longer res integra view of the large number of judgments of the Supreme Court.

It was held that A show cause notice is issued on the basis of uncontested material available before the Assessing Authority, who based thereon, has arrived at Prima facie finding whether a show cause notice ought to be issued or not. The material, thus, which has to be considered is, untested and uncorroborated. A party is called upon to reply to the said show cause notice in order to enable the Revenue to know the stand of the assessee, in the context of the material produced as to whether the proceedings should be further proceeded with. It is an opportunity to party being proceeded against to disclose any material that the party may have to rebut the prima facie opinion. Even if, the assessee fails to reply to the show cause notice, that does not amount to an ‘admission’ of the contents of the show cause notice in the absence of any statutory provisions and it is always open to an assessee to cross-examine the witnesses whose statements are relied upon or sought to be examined on behalf of the Revenue.

It was held that at the stage of show cause notice, there is no adjudication. It is only a step in the process of adjudication. The show cause notice by itself is not an order of assessment. The order of assessment will be passed only after considering the evidence and the material, which is placed before the quasi judicial authority/tribunal. Therefore, as the show cause notice is based on prima facie material and constitutes a prima facie opinion, that does not result into an order of adjudication.

It was held that the assessee will not be entitled to cross examination, even before the adjudication has commenced.

It is only after the adjudication proceedings have commenced pursuant to show cause notice and if the Revenue seeks to rely upon the statements or documents, then the principles of natural justice would require in the absence of any statutory provision, that the person whose statement was recorded is made available for cross-examination to test the veracity of the statement.

Thus, it was held that there is no requirement in the Act or Rules, nor do the principles of natural justice and fair play require that the witnesses whose statements were recorded and relied upon to issue the show cause notice, are liable to be examined at that state. If the Revenue chooses not to examine any witnesses in adjudication, their statements cannot be considered as evidence. However, if the Revenue choose to rely on the statements, then in that event, the persons whose statements are relied upon have to be made available for cross-examination for the evidence or statement to be considered.

It was opined that there is no right, procedurally or substantively or in compliance with natural justice and fair play, to make available the witnesses whose statements were recorded, for cross-examination before the reply to the show cause notice is filed and before adjudication commences. The exercise of cross-examination commences only after the proceedings for adjudication has started.

With regard to the question of bearing the cost of photocopy of documents, it was held that it is true that in view of the Adjudication Manual as also the judgment in Sanghi Textile Processors (P) Ltd., the assessee is entitled to the reasonable cost incurred for getting the copies of the documents.

On the issue of providing hard copies of the relied upon documents, on facts of this case, it was held that giving of documents in soft copy i.e. in CD form would amount to sufficient compliance though may not be strict compliance. In case, there are any documents, which are not clear, then in that event, if the respondent applies for those documents, which are not clear, then in that event, then the Department shall, within 15 days of the receipt of the letter in respect of those copies, make them available to the respondent herein at the Department’s cost.

Part of the impugned order relating to cross-examination set aside. Insofar as providing the documents is concerned, it shall be in terms of what has been stated above.

Decision:- Appeal disposed of accordingly.

Comment:- This is very good decision. Normally in DGCEI and DRI cases they provide copies in CD. But these scan copies are not normally visible. But the department is always reluctant to provide the hard copy of the same. This decision will help the assessee to get the hard copy. Similarly the cross examination is not being allowed by the adjudication authority. This will also help the manufacturer to force the adjudication officer to allow the same.

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PJ/Case Laws/2010-11/1051

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