Notice and finality requirements limit special recovery adjustments against cash rebate and disputed interest demands.

Special recovery powers used to adjust a cash rebate against alleged dues required prior notice to the assessee, because garnishee-like recovery affects money otherwise payable and must follow fair procedure; the adjustment made without notice was invalid. The recovery machinery under section 142 of the Customs Act, 1962, as applied to central excise matters, was treated as extending to movable property, so cash rebate could in principle be adjusted against recoverable dues. A demand for interest that was still sub judice and had not attained finality could not be recovered through that special adjustment mechanism; the adjustment was therefore set aside and the appropriated amount ordered to be restored with consequential relief.

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Issues: (i) Whether adjustment of rebate amount could be made without prior notice to the assessee; (ii) whether the provisions enabling recovery from money owing to the assessee could be invoked for adjustment of cash rebate; (iii) whether an interest demand that was still sub judice could be recovered by way of such adjustment.

Issue (i): Whether adjustment of rebate amount could be made without prior notice to the assessee.

Analysis: The adjustment was made under the special recovery power akin to garnishee proceedings. Such recovery affects money otherwise payable to the assessee and, before resorting to it, the assessee was required to be put to notice. Recovery without notice offends the requirement of fair procedure.

Conclusion: Decided in favour of the appellant.

Issue (ii): Whether the provisions enabling recovery from money owing to the assessee could be invoked for adjustment of cash rebate.

Analysis: The recovery mechanism under section 142 of the Customs Act, 1962, as applied to central excise matters, was held to extend to movable property. Cash is movable property, and therefore the statutory machinery could cover adjustment of cash rebate against recoverable dues.

Conclusion: Decided in favour of the revenue and against the appellant.

Issue (iii): Whether an interest demand that was still sub judice could be recovered by way of such adjustment.

Analysis: On the date of adjustment, the liability for interest was still pending consideration before the Bombay High Court. A demand that had not attained finality could not be recovered through the special mode of recovery applied by the department.

Conclusion: Decided in favour of the appellant.

Final Conclusion: The adjustment of rebate was set aside and the amount already appropriated was directed to be restored, with consequential relief in accordance with law.

Ratio Decidendi: Special recovery powers cannot be invoked without notice, and they cannot be used to appropriate amounts against a demand that has not yet attained finality.

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