Statutory first charge for sales tax arrears prevails over an earlier mortgage, defeating the secured creditor's priority claim.

Under the Tamil Nadu General Sales Tax Act, 1959, tax assessed or payable was given statutory priority over other claims against the dealer's property, and unpaid tax was treated as a charge on the assessee's assets. Applying the settled rule that a statutory first charge prevails over an earlier mortgage, the Madras HC held that the State's sales tax arrears ranked ahead of the appellant-bank's secured interest under an equitable mortgage. Earlier authorities recognising priority for statutory tax dues were followed, and the bank's reliance on a different line of cases was rejected as inapplicable on the facts.

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Issues: Whether the appellant-bank, as a secured creditor under an earlier equitable mortgage, had priority over the State's claim for sales tax arrears under the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The relevant statutory scheme conferred priority on tax dues. Section 24(2) provided that tax assessed or payable under the Act would have priority over all other claims against the dealer's property, subject only to the limited statutory exceptions mentioned therein. Section 26(6) treated unpaid tax as a charge on the assessee's properties. The Court applied the settled principle that where a statute creates a first charge, that charge prevails over an existing mortgage. The earlier decisions recognising priority of statutory tax dues over secured debts were followed, and the bank's reliance on a different line of authority was held inapplicable on the facts.

Conclusion: The State's claim for sales tax arrears had priority over the appellant-bank's mortgage, and the bank was not entitled to assert priority over the tax dues.

Ratio Decidendi: When the sales tax statute creates a first charge or statutory priority over the dealer's property, that charge overrides an earlier mortgage and prevails over the secured creditor's claim.

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