Refund debit cannot continue after a demand is set aside; fresh show cause notice may still proceed pending adjudication

After an appellate authority set aside an excise demand, the revenue could not continue debiting the assessee's personal ledger or withhold the refund on the basis of that cancelled demand; the amount had to be credited back until any fresh demand was validly adjudicated. A fresh show cause notice, however, was only a step in the adjudicatory process and was not liable to be quashed merely because it had been issued after remand. The assessee was entitled to contest that notice in the pending proceedings, but not to restrain the proceedings at that stage.

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Issues: (i) Whether the excise authorities could debit the petitioner's personal ledger account and withhold refund after the original demand had been set aside in appeal and the matter remanded; (ii) Whether the show cause notice dated 14-10-1985 was liable to be quashed and further proceedings restrained.

Issue (i): Whether the excise authorities could debit the petitioner's personal ledger account and withhold refund after the original demand had been set aside in appeal and the matter remanded.

Analysis: Once the appellate order set aside the demand, the position of the parties reverted to the status quo ante. The issuance of a fresh show cause notice did not create an enforceable demand, because no adjudication had yet taken place on that notice. In that situation, the respondent had no authority to adjust the amount from the petitioner's refund claim or continue the debit in the personal ledger account.

Conclusion: The debit and withholding of the sum were unlawful, and the petitioner was entitled to credit of the amount in its personal ledger account.

Issue (ii): Whether the show cause notice dated 14-10-1985 was liable to be quashed and further proceedings restrained.

Analysis: The notice was only a step in the adjudicatory process and had to be replied to and decided in accordance with law. No ground was made out for quashing it at that stage, and the petitioner was entitled to a hearing in the pending proceedings.

Conclusion: The challenge to the show cause notice failed, and the notice was allowed to proceed.

Final Conclusion: The writ petition succeeded only to the extent of directing immediate credit of the disputed amount in the petitioner's account, while the challenge to the show cause notice was rejected.

Ratio Decidendi: After an appellate authority sets aside a demand, the revenue cannot continue to retain or debit the amount on the basis of that set-aside demand unless and until a fresh demand is validly adjudicated.

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