Illegal refund adjustment against settled demand barred where no outstanding liability survived and Article 265 was offended.

Refund arising from the 2011-12 assessment could not be adjusted against the 2010-11 demand once the petitioner had already complied with the settlement scheme and no outstanding liability remained. The court held that the adjustment was without authority of law and contrary to the settlement scheme and refund procedure under the MVAT Rules. The bar on refund under the settlement scheme applied only to the amount paid under that scheme, not to a separate refund already crystallised under the appellate order for 2011-12. Retention of the excess amount would also violate Article 265 of the Constitution. The petitioner was entitled to refund with interest.

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Issues: Whether the refund arising from the assessment for 2011-12 could be adjusted against the earlier demand for 2010-11 after the petitioner had already complied with the settlement scheme; and whether the bar on refund under the settlement scheme applied to the refund amount claimed by the petitioner.

Analysis: The petitioner had already paid the amount payable under the settlement scheme for 2010-11 before the refund adjustment order was issued. On that date, no outstanding demand survived for 2010-11 against which the refund for 2011-12 could lawfully be adjusted. The adjustment was therefore made without authority of law and was contrary to the scheme and the refund procedure under the MVAT Rules. The bar against refund under the settlement scheme applied only to the amount paid under that scheme, not to a separate refund already arising from the appellate order for 2011-12. Retention of the excess amount would also offend Article 265 of the Constitution of India.

Conclusion: The refund adjustment was illegal, and the petitioner was entitled to refund of the amount for 2011-12 with interest.

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