Statutory first charge for sales tax dues prevails over a secured bank's claim, and sale proceeds go first to the State.

Section 16(b) of the Himachal Pradesh General Sales Tax Act, 1968 creates a non obstante statutory first charge on the dealer's property for tax, penalty and interest, and that charge prevails over a secured bank's prior claim. Non-statutory departmental instructions on liquidation priorities cannot override the statutory mandate. The court therefore directed that the sale proceeds be applied first toward the State's sales tax dues, with any remaining balance payable to the bank.

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Issues: Whether the State's sales tax dues had a statutory first charge over the sale proceeds and would prevail over the claim of the secured bank.

Analysis: Section 16(b) of the Himachal Pradesh General Sales Tax Act, 1968 creates a non obstante statutory first charge on the property of the dealer for tax, penalty and interest. The settled principle applied was that where the legislature creates such a first charge in favour of the State, it prevails over existing private charges, including the claim of a secured creditor. Non-statutory departmental instructions governing liquidation priorities could not override the statutory mandate. The precedents relied upon recognized the priority of State tax dues and, where a statutory first charge exists, the bank's secured interest must yield to that charge.

Conclusion: The State was entitled in the first instance to recover its sales tax dues from the sale proceeds, and the bank was entitled only to any residual amount left after satisfaction of the State's charge.

Final Conclusion: The application was disposed of by directing release of the sale proceeds first towards the State's statutory tax dues, with any balance, if remaining, to go towards the bank's claim.

Ratio Decidendi: A statutory first charge created in favour of the State for tax dues prevails over a secured creditor's charge and must be satisfied in priority from the sale proceeds.

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