Natural justice bars refund adjustment without prior notice; writ relief remains available despite an alternate appeal remedy.

An adverse adjustment of a later refund against earlier tax dues cannot be sustained where it is made without prior notice and an opportunity of hearing, particularly when a settlement application is pending and the assessee has sought to keep the refund on hold. The court treated the absence of communication and abrupt adjustment as a breach of natural justice and held the adjustment liable to be set aside. It also held that the existence of a statutory appeal does not bar writ relief where the challenge is founded on procedural illegality going to the root of the action. The matter was remanded for fresh consideration after hearing the assessee and passing a reasoned order.

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Issues: (i) Whether the refund adjustment of the subsequent year's refund towards earlier year's tax dues could be sustained without prior notice to the assessee; (ii) Whether the assessee should be relegated to the statutory appeal remedy despite the pleaded breach of natural justice.

Issue (i): Whether the refund adjustment of the subsequent year's refund towards earlier year's tax dues could be sustained without prior notice to the assessee.

Analysis: The assessee had informed the authorities that it intended to avail the settlement scheme and had requested that the refund be kept on hold, but no response was given. The refund adjustment was then effected without any notice of the proposed adjustment, even though the adjustment was made while the settlement application was pending. The Court held that, apart from the general requirement of fair hearing, the statutory scheme also contemplated notice before such adverse adjustment of refund. The absence of communication and the abrupt adjustment caused grave prejudice and violated the principles of natural justice.

Conclusion: The adjustment order could not be sustained and was liable to be set aside.

Issue (ii): Whether the assessee should be relegated to the statutory appeal remedy despite the pleaded breach of natural justice.

Analysis: The Court noted that the challenge was not a mere dispute on merits but one rooted in lack of notice and unfair procedure. In the facts of the case, the procedural illegality went to the root of the action, and the availability of an appellate remedy did not bar writ intervention.

Conclusion: The assessee was not relegated to the alternate statutory remedy.

Final Conclusion: The refund adjustment and defect notice were set aside, and the matter was sent back to the authorities for fresh consideration of the settlement application after hearing the assessee and passing a reasoned order.

Ratio Decidendi: An adverse adjustment of refund affecting pending settlement proceedings cannot be sustained when made without prior notice and an opportunity of hearing, and the existence of a statutory appeal does not bar writ relief where the impugned action violates natural justice.

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