Statutory appropriation of tax payments governs over Contract Act rules, and post-commencement payments go first to interest.

Appropriation of sales tax payments was held to be governed by the Kerala General Sales Tax Act as a self-contained fiscal code, so the debtor-creditor rules in sections 59 and 60 of the Indian Contract Act did not apply to tax arrears. The court further construed section 55C as operating by reference to the date of payment: payments made on or after its commencement had to be appropriated first towards interest and then towards principal, even where the arrears related to earlier assessment years. The assessee's challenge to that statutory mode of adjustment therefore failed.

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Issues: (i) Whether sections 59 and 60 of the Indian Contract Act, 1872 applied to appropriation of payments towards sales tax arrears under the Kerala General Sales Tax Act, 1963. (ii) Whether section 55C of the Kerala General Sales Tax Act, 1963 applied to payments made after 1 January 2000 even when the arrears related to assessment years prior to that date.

Issue (i): Whether sections 59 and 60 of the Indian Contract Act, 1872 applied to appropriation of payments towards sales tax arrears under the Kerala General Sales Tax Act, 1963.

Analysis: The appropriation of tax payments was held to be governed by the statutory scheme of the sales tax enactment and not by ordinary rules of debtor-creditor adjustment under the Contract Act. The relationship between the dealer and the State arose from operation of the taxing statute and not from contract, and the fiscal enactment was treated as a self-contained code for levy and collection of tax and interest.

Conclusion: The Contract Act provisions did not apply, and the assessee's contention based on sections 59 and 60 failed.

Issue (ii): Whether section 55C of the Kerala General Sales Tax Act, 1963 applied to payments made after 1 January 2000 even when the arrears related to assessment years prior to that date.

Analysis: Section 55C was construed as operating with reference to the date on which payment was made, not the assessment year to which the arrears related. Sub-section (2) was read as preserving earlier appropriations made before the section came into force, while confirming that payments made on or after the commencement date were to be appropriated first towards interest and only thereafter towards principal outstanding, regardless of the period for which the arrears had arisen.

Conclusion: Section 55C applied to payments made after its commencement, including payments towards pre-2000 arrears, and appropriation first towards interest was upheld against the assessee.

Final Conclusion: The statutory rule of appropriation prevailed over the assessee's requested adjustment, and the challenge to the assessment was rejected.

Ratio Decidendi: Where a fiscal statute expressly prescribes the mode of appropriation of tax payments, that statutory method governs over contractual principles, and its operation is determined by the date of payment rather than the assessment period to which the arrears relate.

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