Wrong tariff item duty cannot be retained without a lawful demand under the correct excise classification

Excise duty collected under Tariff Item 68 could not be retained by adjustment against alleged liability under Tariff Item 15A(2) because no lawful demand or assessment had been made under the correct item. The majority held that tax collection requires authority of law, and a payment made under the wrong tariff item cannot substitute for a proper statutory demand under the applicable procedure. The fact that both tariff items carried the same rate did not validate retention of the amount. The amount was therefore refundable to the assessee.

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Issues: Whether the Department could retain basic excise duty paid under Tariff Item 68 by adjusting it against duty said to be leviable under Tariff Item 15A(2) without a legally valid demand and assessment under the correct item.

Analysis: The majority held that the basic duty had been demanded only under Tariff Item 68, while no lawful proceedings under Section 11A were initiated to demand basic duty under Tariff Item 15A(2). Since collection of tax must have authority of law and there was no valid assessment or demand under the correct tariff item, the amount collected under the wrong item could not be retained by way of adjustment. The fact that the rate under both items was the same did not legalise retention of the amount, and the earlier payment could not substitute for a proper statutory demand.

Conclusion: The Department was not entitled to retain the amount by adjustment, and the amount was refundable to the assessee.

Ratio Decidendi: Tax collected under an incorrect tariff item cannot be retained or adjusted against alleged liability under the correct item unless the Department has first made a lawful demand and assessment under the proper statutory procedure.

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