Recredit of duty deposit follows setting aside of demand, even without express authorisation or a merits-based appellate order.

Duty deposited during the pendency of an appeal as a stay condition may be re-credited when the appellate authority sets aside the demand, because the setting aside of the adjudication order restores the amount to the assessee. That consequence applies whether the appellate order is on merits or on limitation, and the absence of an express direction authorising recredit does not make the credit irregular. The departmental objection that the earlier order was not decided on merits was rejected as irrelevant to the legal effect of reversal of the demand. A demand and penalty founded only on alleged unauthorised recredit were therefore unsustainable.

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Issues: Whether duty deposited during the pendency of the appeal under Section 35F of the Central Excise Act, 1944 could be re-credited by the assessee after the appellate order set aside the demand on limitation, and whether such recredit became irregular because the appellate order did not contain an express direction to take credit.

Analysis: The duty in question had been deposited during the pendency of the first appeal as a condition of stay. Once the appellate authority set aside the demand, the legal consequence was that the assessee became entitled to restoration of the amount deposited. The effect of setting aside the demand was the same whether the appellate order was passed on merits or on limitation. The absence of an express direction authorising recredit did not defeat the assessee's entitlement, because the setting aside of the adjudication order itself carried the benefit flowing from that order. The departmental objection that the earlier appellate order was not on merits was rejected as irrelevant to the legal consequence of the reversal of the demand.

Conclusion: The assessee was entitled to re-cred it the duty deposited during the appeal, and the departmental demand and penalty based on alleged unauthorised recredit were unsustainable.

Ratio Decidendi: When an adjudication order demanding duty is set aside by the appellate authority, the assessee is entitled to recover or re-credit the amount deposited during the appeal as a consequence of that setting aside, irrespective of whether the appellate order was passed on merits or on limitation, and no separate express authorisation to recredit is .

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