Priority of workmen and secured creditors overrides state sales tax charge in company liquidation under winding up law.

Section 26B of the Kerala General Sales Tax Act, 1963 creates a first charge for sales tax dues, but where the company is in liquidation the distribution of assets is governed by the Companies Act, 1956. Section 529A gives workmen's dues and the corresponding dues of secured creditors statutory priority over all other debts, and that priority cannot be displaced by implication. On that basis, the State's sales tax claim could not rank ahead of the amounts protected by section 529A, and the application was liable to be rejected.

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Issues: Whether the State's sales tax dues under section 26B of the Kerala General Sales Tax Act, 1963 have priority over the claims of secured creditors and workmen in the winding up of a company in liquidation, having regard to sections 529, 529A and 530 of the Companies Act, 1956.

Analysis: Section 26B creates a first charge on the property of the dealer, but the company debtor was in liquidation and the distribution of its assets was governed by the winding up provisions of the Companies Act, 1956. Section 529A gives workmen's dues and the corresponding dues of secured creditors a statutory priority over all other debts. The judgment relied on the Supreme Court's holding that section 529A itself creates a statutory first charge in favour of the beneficiaries mentioned therein, and that such priority cannot be displaced by implication. In that legal setting, the State's sales tax claim could not rank ahead of the dues protected by section 529A.

Conclusion: The State's sales tax dues did not have priority over the amounts falling within section 529A of the Companies Act, 1956, and the application was liable to be rejected.

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