Excise refund cannot be denied by adjusting against an unadjudicated demand where classification remains open.

Excise refund could not be denied by treating duty already paid as conclusively assessed under Tariff Item 33(3) when the revisional authority had only set aside the earlier classification and remitted the matter for fresh adjudication after notice and hearing. The Assistant Collector could not assume a final determination on classification or retain duty paid under Item 33(2) by way of adjustment unless a lawful demand under Item 33(3) had been validly raised and decided in accordance with law. The refusal of refund and attempted adjustment were therefore unsustainable.

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Issues: Whether the Assistant Collector could refuse refund by treating the duty already paid as confirmed under Tariff Item 33(3) without any fresh adjudication, and whether the refund could be adjusted against a demand that had not been validly raised.

Analysis: The revisional authority had not finally classified the goods under Tariff Item 33(3); it had set aside the earlier classification and remitted the question to the lower authorities for fresh consideration after notice and hearing. In that situation, the Assistant Collector proceeded on a mistaken assumption that classification under Item 33(3) had already been decided and that the earlier duty payment could simply be confirmed as duty under that item. The duty already paid under Item 33(2) could not be retained by way of adjustment unless a lawful demand under Item 33(3) had been raised and determined in accordance with law. A refund cannot be defeated by reference to a demand that has neither been made nor can validly be made at that stage.

Conclusion: The refusal of refund and the attempted adjustment were unsustainable; the petition succeeded in favour of the assessee.

Ratio Decidendi: Refund of excise duty cannot be appropriated against a duty demand that has not been lawfully raised or adjudicated, and a lower authority cannot treat an open issue as finally decided in order to deny refund.

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