Earlier secured mortgage prevails over sales tax claim where the statute grants priority but no first charge.

An earlier equitable mortgage held by the bank prevailed over the State's later sales tax claim because the Tamil Nadu General Sales Tax Act, 1959 gives tax claims priority over other claims but does not create an express first charge. The Court distinguished precedents under statutes that expressly conferred a first charge and held that, on these facts, the bank's secured interest created in 1993 was anterior to the crystallised tax demand. The demand requiring the bank to remit auction sale proceeds was therefore unsustainable and the proceedings were quashed.

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Issues: Whether the bank, as a secured creditor with an earlier equitable mortgage, had priority over the State's claim for sales tax arrears and whether the impugned demand to remit the auction sale proceeds could be sustained under the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The bank's security was created in 1993, whereas the sales tax demands related to assessment years 1993-94 to 1997-98 and crystallised later. Section 24(2) of the Tamil Nadu General Sales Tax Act, 1959 gives the State's tax claim priority over other claims against the dealer's property, but it does not create a first charge in the same manner as the Rajasthan or Bombay enactments considered in the cited precedents. The Court distinguished the authorities relied on by the Revenue, holding that those cases turned on statutes which expressly created a first charge. On the facts here, the secured debt arose earlier in time, the bank's mortgage was anterior to the tax demand, and the State could not displace the bank's prior security by insisting on appropriation of the sale proceeds.

Conclusion: The State's claim did not prevail over the bank's prior secured interest, and the impugned demand was unsustainable.

Final Conclusion: The writ petition succeeded, and the proceedings demanding payment from the bank out of the auction sale proceeds were quashed.

Ratio Decidendi: Under the Tamil Nadu General Sales Tax Act, 1959, a tax claim that is only accorded statutory priority over other claims does not defeat an earlier secured mortgage unless the statute expressly creates a first charge overriding the secured creditor's prior rights.

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