1958 (8) TMI 36 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of preferential claim under section 530 of the Indian Companies Act, 1956.
2. Determination of whether sales tax dues qualify as preferential claims.
3. Analysis of when sales tax becomes due and payable under relevant provisions.

Analysis:
The High Court of Patna dealt with the interpretation of preferential claims under section 530 of the Indian Companies Act, 1956. The case involved the winding up of a company, Bihar Bolts, Rivets and Engineering Works Ltd., with the official liquidator assessing claims, particularly those of the sales tax department. The official liquidator contended that the entire claim of the department should be treated as an ordinary debt, not a preferential claim. On the other hand, the Superintendent of Commercial Taxes argued that a specific amount should be considered preferential. The critical issue was whether the sales tax dues qualified as preferential claims under the law.

The court examined the provisions of section 530(1)(a) of the Companies Act, which prioritizes the payment of revenues, taxes, and rates due from the company to the government entities. The relevant date for determining preferential claims was the date of the provisional liquidator's appointment. The court noted the distinction between a claim being "due" and "payable," highlighting that both conditions must be met within twelve months before the relevant date for preferential treatment. The court emphasized that a debt is considered due when it exists, even if payable at a future date.

Regarding the sales tax liabilities, the court analyzed the Bihar Sales Tax Act, emphasizing that liability arises immediately after a sale, and the tax is payable based on returns submitted by the dealer. The court clarified that the amount becomes legally recoverable only after final assessment and notification to the assessee. The court referenced a previous judgment to support the view that tax becomes payable when quantified and notified to the taxpayer with a demand for payment.

In conclusion, the court held that the sales tax dues, amounting to Rs. 7,934-1-0, qualified as preferential claims as they became due and payable within the twelve-month period before the relevant date. The official liquidator was directed to treat the sales tax department's claim as preferential and prioritize its payment over ordinary debts. The judgment clarified the criteria for preferential claims and the timing of when sales tax obligations become due and payable under the relevant legal provisions.