RAJRATHA NARANBHAI MILLS. CO. LTD. versus SALES TAX OFFICER, PETLAD

Citation: [1991] 1 S.C.R. 527 · Decided: 19-02-1991 · Supreme Court of India · Bench: K.N. SAIKIA · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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RAJRA THA NARANBHAI MILLS .. CO. LTD. 
v._ 
SALES TAX OFFICER, PETLAD 
FEBRUARY 19, 1991 
[K.N. SAIKIA AND M.M. PUNCHHL JJ.] 
Companies Act, 1956: S. 530(J)(a)-State's claim to priority in 
relation to sales tax dues from a company in liquidation-Ambit of.· 
Expression 'having become due and payable within the twelve 
months next before the relevant date'-Meaning and scope of. 
The appellant company was ordered to be wound up by Court's 
order dated 26.6.1967. The liquidator invited creditors to prove their 
debts or claims and to establish title, if any to determine priority under 
s. 530(1)(a) of the Companies Act, 1956. The Sales Tax Officer submit-
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ted a comprehensive claim of sales taX plus penalty and claimed prio-
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rity. The liquidator rejected the claim for priority in its entirety but 
admitted a part of it payable as debt with other unsecured creditors._ 
The Revenue appealed to the Hi~ Court contending that the 
liquidator erred in law in not granting ptjority to the claim to sales tax 
payable by the company for the perjod <from 1.4.1957 to 31.12.1965 
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under the Bombay Sales Tax Act, and for the period from 1.7.1957 to-
31.12.1965 under the Central Sales Tax: Act inasmuch as notice of 
demand was issued and assessment order was made in respect thereof 
within a period of 12 months before the rel~vant date. 
The Company Judge, interpreting s. 530(l)(a) of the Act, held F 
that tax becomes due when taxing event occurs and not when ~ss­
ment orders passed; that even though the amount for which priority 
was claimed was the amount of tax arrears that became payable at the 
time of making asSessment orders after giving credit for what was pa\d 
alongwith return, yet it was due for a period much prior to 12 months 
next before the relevant date, and rejected the appeal on that score, but G 
allowed the claim to the extent of a small amount of penalty under the 
two Sales Tax 'Acts upto the relevant date. 
The Revenue filed an intra court appeal, which along with 
another referred matter was heard by a Division Bench. The Di.-ision 
Bench held that sales tax becomes due and payable when the tax bas H 
527 
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B 
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Ji 
528 
SUPREME COURT REPORTS 
[1991] 1 S.C.R. 
been assessed and notice of demand for its payment is served. It anowed 
the claim of priority to the sales tax due under the two Ac~, assessment 
orders in respect of wWch were passed within the period of 12 month$ 
•mmediately preceding 26.6.1967. The balance amount was directed to 
rank as ordinary debts since the relevant orders were passed after the 
date of winding up order. The claim of recovery of -penalty was 
negatived, because the demand was held to be without application of 
mlnd as to whether there was reasonable cause for the official liquidatot 
for not paJing the amount. Aggrieved, the company filed the present 
appeal by certificate. 
Allowing the appeal, this Court, 
HELD: 1 •. Section 530(1)(a) of the Companies Act, 1956 provid~ 
that State has a priority over debts, liability and obligation of which W8$ 
born witJrln the time frame of 12 months next before the relevant da1'· 
and as such due and becoming due and payable within those twelv' 
months, ascertainable, if necessary, later if not already ascertained;. 
Thus the legal philosophy which penneats the provision is that the debts 
due and payable, so as to claim priority must be appropriated to the period 
within U months next before the relevant date and their liability for pay-
ment must be founded during that period and no other. [536G-H, 537 A-Bl 
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2.1 The words 'having become due and payable within the twelve 
months next before the relevant date' occurring in clause (a) of s. 530(1) 
of the Companies Act need be understood to mean putting a restriction 
or cordoning off the amount for which priority is claimable and not in 
respect of each and everl' debt «._tn account ~t' taxes, rates and cesses, etc. 
which may be outstanding at that time and payable. And that such 
priority is in respect only of debts those of which became due and 
payable because the liability to thost iS rooted, founded and belonging 
to that period of twelve months prior to the relevant date and none 
other; both the conditions existing. [537C-E] 
Airedale Gara[Je Co. In re: Anglo-South American v . . The Com-
pany, (1832] Vol. 2 Company Cases 570, referred to. 
2.2 :S~th Benches of the High Court gave to the pr<;>vision a very 
wide and varied interpretation a

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