Refund adjustment beyond the 20% pre-deposit threshold is impermissible during pendency of appeal and stay proceedings.

Where an assessee had already made the minimum 20% pre-deposit and the appeal and stay application were pending, adjustment of the entire refund against demand beyond that threshold was impermissible. The Karnataka High Court followed the co-ordinate bench view that recovery should not be enforced beyond the required pre-deposit during pendency of the appeal. The adjustment communication was therefore unsustainable and was quashed, with a direction to refund the excess amount with applicable interest and to restrain further coercive recovery until the stipulated period after disposal of the appeal.

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Issues: Whether the refund amount could be adjusted against the outstanding demand in excess of 20% during pendency of the appeal and stay application, and whether the adjustment order was liable to be quashed with consequential refund.

Analysis: The petitioner had already deposited 20% of the demand and the appeal as well as the stay application were pending. The adjustment of the entire refund in excess of the 20% threshold was held to be impermissible, following the earlier co-ordinate bench view that where the assessee has complied with the minimum pre-deposit requirement, recovery beyond that limit should not be enforced pending disposal of the appeal. The impugned communication was also passed during the pendency of the petition and could not be sustained in view of the settled approach governing refund adjustment and recovery restraint in such matters.

Conclusion: The adjustment beyond 20% was held invalid. The communication/order was quashed, the excess amount was directed to be refunded with applicable interest, and further coercive recovery was restrained till the stipulated period after disposal of the appeal.

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