Stay of tax recovery bars refund adjustment against a disputed sales tax demand despite continued liability.

Stay of recovery of disputed sales tax was treated as an order extending time for payment under section 38(4), not merely as an order under section 55(5) or section 55(6), because the appellate authority in substance deferred enforcement of the tax demand. Although the underlying liability continued and the amount remained due, the proviso to section 43 could not be used to adjust a later refund against that stayed demand. Once recovery proceedings were stayed, refund set-off would operate as an impermissible recovery step. The assessee's refund was therefore protected and the department's adjustment was disallowed.

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Issues: (i) Whether the appellate authority's stay-cum-admission order was to be treated as an order under section 38(4) of the Bombay Sales Tax Act, 1959 or under section 55(5) / section 55(6) of that Act; (ii) Whether tax covered by the stay order remained an "amount due" so as to permit adjustment of a later refund under the proviso to section 43 of the Bombay Sales Tax Act, 1959.

Issue (i): Whether the appellate authority's stay-cum-admission order was to be treated as an order under section 38(4) of the Bombay Sales Tax Act, 1959 or under section 55(5) / section 55(6) of that Act.

Analysis: Section 55(5) governed entertainment of the appeal on payment of a lesser sum or on security, while section 55(6) conferred a broad power to pass such orders on appeal as deemed just and proper. Section 38(4), however, expressly empowered the appellate authority to extend the date for payment of tax or permit instalments. By staying recovery of the disputed tax till disposal of the appeal, the appellate authority in substance extended the time for payment. The stay portion could not be confined to section 55(5) alone.

Conclusion: The stay order could properly be viewed as an order under section 38(4) of the Bombay Sales Tax Act, 1959.

Issue (ii): Whether tax covered by the stay order remained an "amount due" so as to permit adjustment of a later refund under the proviso to section 43 of the Bombay Sales Tax Act, 1959.

Analysis: The proviso to section 43 authorises adjustment of excess tax only towards recovery of an amount in respect of which notice under section 38(4) has been issued. Although the liability to pay the disputed tax continued to exist and the amount could still be described as "due", the decisive factor was that recovery proceedings had been stayed. Once recovery was stayed, withholding the refund by way of adjustment would amount to an impermissible recovery step under section 43.

Conclusion: The amount remained due, but no adjustment of the refund was permissible while recovery proceedings were stayed.

Final Conclusion: The reference was answered in a manner that preserved the assessee's refund and negatived the department's adjustment of that refund against the stayed demand.

Ratio Decidendi: Where recovery of sales tax demand is stayed, the department cannot invoke the refund-adjustment provision to realise the stayed demand, even though the underlying tax liability continues to subsist.

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