1967 (9) TMI 136 - HC - VAT and Sales Tax

Issues Involved:
1. Priority of sales tax claims under Section 530(1)(a) of the Companies Act, 1956.
2. Validity of assessment orders passed without notice to the Official Liquidator.

Issue-wise Detailed Analysis:

1. Priority of Sales Tax Claims under Section 530(1)(a) of the Companies Act, 1956:

The appellant, Sales Tax Officer, claimed priority for the arrears of sales tax under Section 530(1)(a) of the Companies Act, 1956. The section stipulates that in winding up, all revenues, taxes, cesses, and rates due to the Central or State Government or local authority, which became due and payable within the twelve months preceding the winding up order, shall be paid in priority to other debts. The relevant date in this case was the 7th of August, 1963.

The court found that the sales tax for the assessment years 1954-55 to 1958-59 could not have become due or payable within the twelve months preceding the winding up order. The court emphasized that Section 530(1)(a) envisages taxes that are currently due and payable at the time of the winding up order, not arrears of the same. Both conditions-due and payable-must co-exist for priority to be claimed. The court cited decisions in Recols (India) Ltd., In re [1953] 4 S.T.C. 271 and The Income-tax Officer, Company Circle v. The Official Liquidator and Others [1967] 37 Comp. Cas. 114 to support this view. Consequently, the first part of the appellant's contention was rejected.

The appellant's second argument was that the sales tax should be given priority as it was ordered to be recovered as arrears of land revenue within the twelve months preceding the winding up order. The court clarified that the words "recoverable" and "payable" have different connotations. The term "revenues" in Section 530(1)(a) refers to revenues that have become due and payable as revenues within the specified period, not revenues recoverable as arrears of land revenue. Thus, the second part of the appellant's contention was also rejected.

2. Validity of Assessment Orders Passed Without Notice to the Official Liquidator:

The Official Liquidator rejected the claims for the assessment year 1959-60 under the U.P. Sales Tax Act and the Central Act, as the assessment orders were passed ex parte without notice to him and the demand notices were not served upon him. The Official Liquidator argued that the assessment proceedings were void ab initio as the Sales Tax Officer did not seek the court's leave to commence these proceedings and that the orders made behind his back were not binding.

The court found that Section 17 of the Sales Tax Act precludes challenging the legality and correctness of an assessment order except as provided in the Act. Since the Official Liquidator did not challenge the assessment orders under the Act, they remained final. The court noted that the Official Liquidator could have filed appeals against the assessment orders and sought condonation of delay under Section 9(6) of the Sales Tax Act, which extends the benefit of Section 5 of the Indian Limitation Act to such appeals. The court held that the Official Liquidator was in error in rejecting the claims on the grounds mentioned.

The court distinguished the case from Union of India v. Seth Spinning Mills Ltd. (in liquidation) [1962] 32 Comp. Cas. 801, which did not involve Section 17 of the U.P. Sales Tax Act or analogous provisions. The court concluded that the appellant's claims under the assessment orders dated the 28th of March, 1964, and the 10th of August, 1964, for the assessment year 1959-60 were wrongly rejected by the Official Liquidator. However, these taxes were not entitled to priority as they were neither due nor payable within the twelve months preceding the winding up order.

Conclusion:

The appeal was allowed in part. The court set aside the decision of the Official Liquidator concerning the sales tax under the assessment orders dated the 28th of March, 1964, and the 10th of August, 1964, for the assessment year 1959-60. The Official Liquidator was directed to entertain the appellant's claim regarding these orders and consider it according to law. The appeal concerning priority was dismissed. The judgment was to be supplied to the Official Liquidator free of charge.

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