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2010 (3) TMI 1200 - HC - VAT and Sales TaxClaim of the State Government - Entitled to Recover the amount - company under liquidation - HELD THAT - In our opinion the learned single Judge clearly erred in holding that though Section 529A of the Companies Act operates Section 38C of the Sales-tax Act also operates. If Section 529A which is the Central Enactment giving priority to the secured creditors and workers operates in relation to a property of the company then provisions of Section 38C giving priority to the State Government will not operate in relation to that property. It is further to be seen here that if Section 38C does not operate in relation to a property of the Company because of operation of Section 529A then by operation of the provisions of the Maharashtra Land Revenue Code there is no change brought about in the situation. In our opinion the provisions of Section 169 of the Maharashtra Land Revenue Code makes the position absolutely clear. The above observations make it clear that by operation of Section 529-A priority is given to the dues of the secured creditors and workers over State first statutory charge. In this view of the matter therefore in our opinion the learned single Judge was not justified in holding that dues of the State Government are recoverable pari pasu with the dues of the Appellant. In the result therefore both the Appeals succeed and are allowed. The order of the learned single Judge in Company Application No.540 of 2002 and Company Application No.101 of 2002 is set aside. No order as to costs.
Issues Involved:
1. Applicability of Section 529-A of the Companies Act. 2. Priority of claims under Section 38(C) of the Bombay Sales-tax Act. 3. Interpretation of Section 169 of the Maharashtra Land Revenue Code. Issue-wise Detailed Analysis: 1. Applicability of Section 529-A of the Companies Act: The core issue was whether the dues of the State Government under the Sales Tax Act could claim priority over the secured creditors and workers as per Section 529-A of the Companies Act. The judgment clarifies that Section 529-A gives overriding preferential payment to workmen's dues and debts due to secured creditors in the winding up of a company. The court emphasized that the provisions of Section 529-A take precedence over any other law, including state laws like the Bombay Sales-tax Act. Thus, the secured creditors and workers' dues are to be paid in priority to all other debts, including state tax dues. 2. Priority of claims under Section 38(C) of the Bombay Sales-tax Act: The State Government contended that under Section 38(C) of the Bombay Sales-tax Act, it had a first charge on the property of the dealer for recovery of sales tax dues. However, the court held that Section 38(C) operates subject to any contrary provision in any Central Act. Since Section 529-A of the Companies Act is a Central Act and provides for priority to secured creditors and workers, Section 38(C) does not operate in this context. The court concluded that Section 38(C) cannot create a right in favor of the State Government that would be on par with the rights created by the Central enactment. 3. Interpretation of Section 169 of the Maharashtra Land Revenue Code: The court examined whether the provisions of the Maharashtra Land Revenue Code, particularly Section 169, which provides for the precedence of state claims over other debts, could affect the priority established by Section 529-A of the Companies Act. The court noted that Section 169 distinguishes between sums recoverable as land revenue and sums recoverable as arrears of land revenue. The paramount charge is created only for actual land revenue, not for sums recoverable as arrears of land revenue. The court referenced the Supreme Court's decision in Builders Supply Corporation, which clarified that provisions for recovery of tax dues as arrears of land revenue do not convert those dues into land revenue. Therefore, Section 169 does not elevate sales tax dues to the level of land revenue dues. Conclusion: The court concluded that Section 529-A of the Companies Act, being a Central enactment, overrides the provisions of Section 38(C) of the Bombay Sales-tax Act and Section 169 of the Maharashtra Land Revenue Code. The dues of the secured creditors and workers have priority over the sales tax dues of the State Government. The learned single Judge's order was set aside, and it was held that the dues of the State Government are not recoverable pari passu with the dues of the secured creditors and workers. The appeals were allowed, and the parties were directed to maintain the status quo for six weeks.
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