Adjustment of rebate against disputed customs demands is impermissible when the underlying liability has not attained finality.

Cash rebate cannot be appropriated against customs duty arrears where the underlying demands are still under challenge and have not attained finality. Recovery machinery under Section 142 of the Customs Act cannot be used to treat disputed and stayed demands as recoverable arrears for set-off against refund or rebate. The Tribunal held that adjustment in such circumstances is not sustainable in law, and the rebate could not be applied against the pending demands.

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Issues: Whether rebate sanctioned in cash could be appropriated against customs duty arrears when the underlying demands were under challenge and had not attained finality.

Analysis: The appeals concerned adjustment of rebate sanctioned to the assessee against customs arrears by invoking the recovery machinery under Section 142 of the Customs Act, 1962. The Tribunal noted that the very demands against which appropriation was made were already under appeal before it and stay had been granted in those matters. Following the settled position that recovery or adjustment against a demand that has not attained finality is not permissible, the Tribunal held that disputed and pending customs liabilities could not be treated as recoverable arrears for set-off against refund or rebate.

Conclusion: The appropriation of the rebate against pending customs demands was held unsustainable in law and the issue was decided in favour of the assessee.

Ratio Decidendi: Refund or rebate cannot be adjusted against a demand that is still disputed and has not attained finality.

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