Mandatory show cause notice and quantified demand are required before adjusting refund or rebate against alleged excise liability.

A valid show cause notice quantifying the duty demand is mandatory before the department can recover or adjust sums against an assessee's refund or rebate. Here, the original notice addressed only classification and exemption denial, while later letters and a belated notice could not cure the absence of a quantified demand. The recovery provision was described as a garnishee-type mechanism for third-party monies and not a power to unilaterally appropriate amounts payable to the assessee against an unadjudicated liability. A direction to issue a fresh notice to validate the adjustment was also outside appellate power, so the sanctioned refund or rebate could not be adjusted.

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Issues: Whether the department could adjust the sanctioned refund or rebate towards alleged duty and interest demands without a valid show cause notice quantifying the demand and whether such adjustment could be sustained under the recovery provisions of the Central Excise Act.

Analysis: The show cause notice issued in 1982 dealt only with classification and denial of exemption under Notification No. 66/82 and did not raise or quantify any duty demand. The later departmental letters and the belated notice could not cure that foundational defect. A show cause notice in the prescribed manner is a mandatory requirement before raising a demand, and correspondence or adjustment letters cannot substitute for it. The recovery provision invoked by the department was held to be only a mode of recovery against third-party monies in the nature of garnishee proceedings and does not authorise unilateral appropriation of sums payable to the assessee against an unadjudicated or unquantified liability. The direction to issue a fresh notice to validate the adjustment was also treated as beyond the appellate authority's powers.

Conclusion: The adjustment of the sanctioned refund or rebate against the alleged duty and interest was unsustainable. The demand remained unquantified and uncrystallized, and the assessee was held entitled to the full refund or rebate.

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