Cross-Examination in GST Show-Cause Proceedings: Necessity, Prejudice and Statutory Appeal – New Threshold in Vallabh Textiles

1. Introduction

In the case of M/S. Vallabh Textiles v. Additional Commissioner Central Tax GST, Delhi East & Ors. (2025 DHC 2559-DB), the Delhi High Court addressed the contours of the right to cross-examination in adjudication proceedings under the Central Goods and Services Tax Act, 2017 (CGST Act). The petitioner, Vallabh Textiles (“the Petitioner”), challenged adjudication orders imposing a total GST demand of Rs. 7.13 crore and equivalent penalties, on grounds of procedural arbitrariness and violation of Articles 14, 19(1)(g), 265 and 300A of the Constitution. The key issue was whether the Petitioner’s request to cross‐examine third parties—whose statements were relied upon by the Adjudicating Authority—should have been granted as a matter of right, and whether writ jurisdiction lay in the face of a statutory appellate remedy.

2. Summary of the Judgment

On 9 April 2025, a Division Bench comprising Justices Prathiba M. Singh and Rajneesh Kumar Gupta held:

The request for cross-examination of witnesses whose statements were corroborative of undisputed documentary evidence was correctly denied. Cross-examination is not an unfettered right in GST adjudication; it must be allowed only when refusal causes prejudice.
Blanket or general requests to cross-examine numerous witnesses amount to converting a show-cause notice into a mini-trial and cannot be sustained.
The Petitioner must exhaust the statutory appellate remedy under Section 107 of the CGST Act before approaching the High Court under Article 226. Writ jurisdiction cannot circumvent a clearly available and efficacious appeal.
The petition was disposed of, permitting Vallabh Textiles to file its appeal within 30 days, and directing the appellate authority to hear it on merits without limitation objections.

3. Analysis

3.1. Precedents Cited

Mohammed Muzzamil & Another v. CBIC (Telangana High Court): Held that cross-examination cannot be claimed as an absolute right when it does not bear on any material issue or prejudice the party.
Sushil Aggarwal v. Principal Commissioner of Customs (Delhi High Court, 2025 DHC 698-DB): Clarified that while cross-examination may be granted, it is not unfettered and must satisfy the requirements of Section 138(B) of the Customs Act.
M/s. Telestar Travels Pvt. Ltd. v. Special Director of Enforcement (2013 (9) SCC 549): Established that refusal to cross-examine witness-produced documents (in compliance with Section 139 of the Evidence Act) does not vitiate proceedings unless demonstrable prejudice is shown.
K.L. Tripathi v. State Bank of India (1984 (1) SCC 43): Provided foundational principles on the denial of cross-examination when documentary evidence is undisputed and corroborative.

3.2. Legal Reasoning

The Court’s legal reasoning can be distilled into the following principles:

Nature of Show-Cause Proceedings: Adjudication under the CGST Act is administrative, governed by principles of natural justice but not bound by strict rules of evidence.
Scope of Cross-Examination: Cross-examination serves to test the veracity of oral testimony. It need not be granted where the evidence is purely documentary or corroborative, or where the party cannot demonstrate that denial causes real prejudice.
Prejudice as Threshold: The petitioner must specify how refusal to cross-examine particular witnesses prejudices its case. Absent such a showing, blanket requests are unsustainable.
Statutory Appeal versus Writ Jurisdiction: Article 226 of the Constitution cannot be invoked to bypass an existing and effective appellate remedy under Section 107 of the CGST Act. Writ jurisdiction is available only when no equally efficacious alternative exists or in cases of jurisdictional error.

3.3. Impact

This judgment sets a clear standard for adjudicating bodies and taxpayers in GST litigation:

Adjudicating authorities will be guided to evaluate cross-examination requests on demonstrable necessity and prejudice, rather than adopt a blanket approach.
Taxpayers must frame specific, reasoned applications for cross-examination of identified witnesses, explaining how their testimony affects material facts.
The availability of an appeal under Section 107 of the CGST Act is reinforced as the primary recourse, narrowing the scope for writ petitions under Article 226 in GST matters.
Future litigants will cite this decision to argue against unwarranted cross-examination demands and to emphasize compliance with statutory appeal procedures.

4. Complex Concepts Simplified

Show-Cause Notice (SCN): A formal notice under Section 74 of the CGST Act requiring a taxpayer to explain why a tax demand should not be made.
Cross-Examination: The process by which a party questions a witness called by the opposing side, aiming to test credibility and accuracy.
Natural Justice: Fundamental procedural fairness principles—“audi alteram partem” (hear the other side) and “nemo judex in causa sua” (no one is judge in their own cause).
Statutory Appeal: The remedy provided by Section 107 of the CGST Act, enabling a taxpayer to challenge an adjudication order before the Appellate Authority.
Writ Jurisdiction: The power of a High Court under Article 226 of the Constitution to issue orders (writs) for enforcement of fundamental rights or for any other purpose, used sparingly where no alternate remedy exists.

5. Conclusion

The Delhi High Court in Vallabh Textiles has articulated a balanced framework for cross-examination in GST adjudication: it is neither a matter of right nor a tool for turning administrative proceedings into full-blown trials. By insisting on demonstrable prejudice and preserving the primacy of the statutory appeal, the Court has enhanced procedural clarity and efficiency in GST litigation. This ruling will prove decisive in shaping the conduct of both revenue authorities and taxpayers, ensuring that natural justice is observed without undermining the streamlined dispute-resolution architecture envisioned by the CGST Act.