Doctrine of merger bars reopening final refund, and refund adjustment requires prior notice and hearing before any set-off.

A later departmental notice seeking to reopen a refund already finalised in prior proceedings is inconsistent with the doctrine of merger and cannot survive once the refund and interest have attained finality. The note also states that adjustment of sanctioned refund and interest against alleged outstanding demands must be preceded by notice and a fair opportunity to object and produce evidence; unilateral adjustment without hearing breaches natural justice and can be set aside. The consequence described is quashing of the later notice and remand for fresh consideration after due notice.

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Issues: (i) Whether the subsequent show-cause notice and the impugned orders were sustainable in view of the earlier final determination of refund and the doctrine of merger; (ii) Whether adjustment of the sanctioned refund and interest towards outstanding demands could be made without prior notice and opportunity of hearing.

Issue (i): Whether the subsequent show-cause notice and the impugned orders were sustainable in view of the earlier final determination of refund and the doctrine of merger.

Analysis: The refund and interest had already been finalized by the Tribunal and supported by the High Court and the Supreme Court. In that background, a later departmental notice attempting to reopen the matter was inconsistent with the settled position and could not survive. The impugned appellate order also could not stand in the face of the earlier binding adjudication.

Conclusion: The subsequent show-cause notice was quashed and the Revenue's challenge failed.

Issue (ii): Whether adjustment of the sanctioned refund and interest towards outstanding demands could be made without prior notice and opportunity of hearing.

Analysis: Although the departmental authorities adjusted the refund and interest against alleged arrears under Section 11 of the Central Excise Act, the assessee was entitled to be informed of the proposed adjustments and given an opportunity to object and produce evidence. That procedural safeguard was not followed, causing prejudice.

Conclusion: The adjustments were set aside and the matter was remanded for fresh notice and hearing.

Final Conclusion: The Revenue's appeal was rejected, while the assessee obtained relief against the unilateral adjustment of refund and interest, with the matter sent back for reconsideration after due notice.

Ratio Decidendi: Where refund liability has attained finality in earlier proceedings, a later notice seeking to reopen the settled issue is barred by merger, and any adjustment of refund against alleged dues must comply with natural justice by issuing notice and affording a hearing.

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