Refund adjustment against settled tax demands is unauthorized when later-period liabilities have been extinguished under a settlement scheme.

Where a refund for an earlier tax period is sought to be adjusted against later-period demands that have already been settled under an amnesty or settlement scheme, the adjustment is without authority if no surviving demand remains for those later periods. The Bombay HC treated the settlement orders as conclusively governing the liability position for the later periods and rejected departmental retention of the earlier refund against non-existent liabilities. The refund adjustment was therefore invalid, and release of the refund with interest as per rules followed.

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Issues: Whether the refund due for the earlier tax period could be adjusted against alleged demands for later tax periods after those later demands had been settled under the amnesty/settlement scheme.

Analysis: The refund arose for the tax period 2007-08. The later period demands for 2008-09 and 2009-10 stood settled under the settlement orders, and the department did not dispute that there was no surviving demand for those periods. In that situation, the adjustment of the earlier refund against settled and non-existent liabilities was held to be without authority. The Court also treated the settlement regime as governing the liability position for the later periods, making the attempted retention of the refund legally unsustainable.

Conclusion: The adjustment of the refund was invalid and the petitioner was entitled to release of the refund amount with interest as per rules.

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