Preferential payment of sales tax dues in winding up depends on when liability arose and became payable.

Sales tax dues are entitled to preferential payment in winding up where the tax had already arisen from taxable sales, but first became payable only within the twelve months before the relevant date. The article treats "due" and "payable" as distinct: liability arose when each taxable sale occurred, while payable status began only on assessment, quantification, and demand. For a provisional liquidator, the relevant date is the date of appointment. On that basis, a sales tax claim satisfying both conditions under section 530(1)(a) of the Indian Companies Act, 1956 is a preferential debt entitled to priority over ordinary creditors.

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Issues: Whether the sales tax dues of the company, quantified and demanded within twelve months before the relevant date, were entitled to preferential payment under section 530(1)(a) of the Indian Companies Act, 1956.

Analysis: Section 530(1)(a) gives priority to revenues, taxes, cesses and rates which are due from the company on the relevant date and have become due and payable within the twelve months preceding that date. The relevant date in the case of a provisional liquidator was the date of appointment of the provisional liquidator. The expressions "due" and "payable" were treated as distinct. Sales tax liability under the Bihar Sales Tax Act, 1947 arose on each taxable sale, so the tax became due when the sale took place. It became payable only when the liability was ascertained, quantified and notified by demand. Since the disputed amounts were already due but first became payable within the twelve-month period before the relevant date, the statutory conditions for priority were satisfied.

Conclusion: The sales tax department's claim for Rs. 7,934-1-0 was a preferential claim and was entitled to priority over ordinary debts.

Final Conclusion: The claim of the sales tax department was directed to be treated as a preferential debt in the winding up.

Ratio Decidendi: Under section 530(1)(a) of the Indian Companies Act, 1956, a tax claim is entitled to preferential payment if it exists on the relevant date and first becomes payable within twelve months before that date, even if it had become due earlier.

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