Assessed sales tax becomes payable on demand notice service, giving the balance preferential status in winding up.

The assessed balance of sales tax was treated as a debt due and payable only when the Commissioner quantified the liability and served the demand notice under the assessment machinery. Although the charging provisions fixed liability on taxable turnover, the unpaid balance remained unascertained until assessment, and payment with the return was only an interim estimate. On that basis, the court held that the balance answered the preferential debt test under section 230(1)(a) of the Indian Companies Act only from service of the demand notice, not from the return due date, and was entitled to priority in winding up.

---

---

Issues: Whether the balance of assessed sales tax became due and payable only on service of the demand notice so as to rank as a preferential debt in the company's winding up.

Analysis: The amount in dispute was not the tax already paid with the returns, but only the assessed balance outstanding after adjustment of those payments. Under the sales tax scheme, the charging provisions fixed liability on taxable turnover, but the balance outstanding after assessment was not a concrete, enforceable debt until the Commissioner quantified it and served a notice of demand under the assessment machinery. Section 230(1)(a) of the Indian Companies Act gives priority only to debts that are both due and payable within twelve months before the winding-up order. The assessed balance therefore answered that description only when the demand notice was served, not when the returns fell due. The Court also rejected the contention that the tax became payable merely because the return date had arrived, holding that payment with the return was only an interim payment on the dealer's own estimate and did not convert an unassessed or unascertained balance into a debt payable for liquidation purposes.

Conclusion: The assessed balance of sales tax became due and payable on service of the demand notice and was entitled to priority as a preferential debt in the winding up.

---