Refund adjustment beyond prescribed recovery limit is impermissible; excess set-off must be returned and balance demand stayed.

Where an administrative recovery instruction limited collection during pendency of appeal to a specified portion of the demand, the Revenue could not retain the entire refund by setting it off against the outstanding tax liability. The court held that adjustment beyond the permissible recovery limit was unjustified, so the excess set-off had to be returned to the assessee. The remaining demand was to stay in abeyance until the appeal was decided, preserving the balance between recovery and appellate protection.

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Issues: Whether the Revenue could retain the entire refund by adjusting it against outstanding tax demand when the administrative instruction contemplated recovery of only 20% of the demand and stay of the balance.

Analysis: The adjustment was examined against the Board instruction governing recovery during pendency of appeal. On the figures recorded, only a limited portion of the outstanding demand could be recovered, and the balance refund adjustment exceeded that permissible extent. The excess amount, therefore, required restitution, while the remaining demand was to be kept in abeyance till the appeal was decided.

Conclusion: The excess adjustment was held to be refundable to the assessee, and the balance demand was directed to remain stayed pending disposal of the appeal.

Final Conclusion: The petition succeeded to the extent that the refund was restricted in accordance with the recovery norm and the excess set-off was ordered to be returned, with the demand stayed until appellate disposal.

Ratio Decidendi: Where an administrative recovery instruction limits collection to a specified percentage of the demand during pendency of appeal, adjustment of refund beyond that permissible limit is not justified and the excess must be refunded.

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