Final customs assessment and refund rights cannot be defeated by a time-barred short-levy demand under customs law.

Final customs assessment was treated as binding, and recovery of alleged short levy had to be initiated only through section 39 of the Sea Customs Act within three months of the relevant date. After that period, the Customs authorities could not reopen the assessment or sustain a time-barred demand. A refund claim made within time under section 40 was not defeated by limitation, especially where the refund had later been ascertained by the department itself. Set-off of an invalid short-levy demand against the lawful refund was therefore impermissible, and the withheld amount remained payable to the petitioners.

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Issues: (i) Whether the Customs authorities could reopen a final assessment and recover alleged short levy after the expiry of the three-month period prescribed by section 39 of the Sea Customs Act. (ii) Whether the refund amount already ascertained in favour of the petitioners could be adjusted against the time-barred demand and whether the petitioners' claim for refund was barred by limitation.

Issue (i): Whether the Customs authorities could reopen a final assessment and recover alleged short levy after the expiry of the three-month period prescribed by section 39 of the Sea Customs Act.

Analysis: The scheme of the Sea Customs Act treats final assessment as binding and permits revision only in the manner provided by the Act. Section 39 is the only provision enabling recovery of duties not levied or short-levied, and it requires a notice of demand to be issued within three months from the relevant date. Once that period expires, the Customs authorities cannot treat the assessed duty as short-levied or revive a liability by resorting to any other power.

Conclusion: The alleged short-levy demand was invalid and could not be sustained against the petitioners.

Issue (ii): Whether the refund amount already ascertained in favour of the petitioners could be adjusted against the time-barred demand and whether the petitioners' claim for refund was barred by limitation.

Analysis: The refund applications had been made within time under section 40 of the Sea Customs Act, and the Customs authorities themselves later found the refund amount due. Since the demand for short levy was without jurisdiction and time-barred, the attempted set-off against the refund was illegal. The petitioners' refund claim was not barred, because the right to refund had been duly pursued before the Customs authorities and the amount was first formally ascertained only by the later departmental decision.

Conclusion: The adjustment was unlawful and the refund could not be denied on the ground of limitation.

Final Conclusion: The petitioners were entitled to refund of the amount wrongly withheld, and the Customs authorities' attempt to recover and appropriate the alleged short levy was struck down.

Ratio Decidendi: A demand for short-levied customs duty must be made within the limitation period prescribed by section 39 of the Sea Customs Act, and once that period expires the Customs authorities cannot reopen a final assessment or set off a time-barred demand against a lawful refund.

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