Statutory tax charge prevails over prior mortgage, requiring sale proceeds to be applied toward sales tax arrears.

Statutory sales tax dues under the Tamil Nadu General Sales Tax Act create a first charge that prevails over a prior mortgage and competing secured creditor claims. Where the defaulter's property was sold in SARFAESI proceedings and the proceeds were realised by the mortgagee bank, the tax charge attached to the property and extended to the realised sale proceeds. The mortgagee was therefore required to remit the proceeds toward the tax demand, and the secured claim could not defeat the statutory priority of the tax arrears.

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Issues: Whether arrears of sales tax under the Tamil Nadu General Sales Tax Act had priority over the mortgagee bank's claim to the sale proceeds realised from the defaulter's property.

Analysis: The property of the defaulting dealer had been mortgaged to the petitioner and later sold under SARFAESI proceedings, with the proceeds distributed among secured creditors. The respondent sought recovery of outstanding sales tax by invoking the statutory charge under the Tamil Nadu General Sales Tax Act. In view of the settled principle that statutory tax dues creating a first charge prevail over pre-existing mortgage rights, the sales tax liability attached to the property and extended to the petitioner as holder of the realised sale proceeds. The Court relied on the doctrine that a charge created by operation of law takes precedence over an earlier mortgage and that tax arrears stand in priority to competing secured claims.

Conclusion: The sales tax arrears had priority over the petitioner bank's mortgage claim, and the petitioner was liable to remit the realised sale proceeds towards the tax demand.

Final Conclusion: The writ petition failed because the statutory first charge for sales tax overrides the claim of an existing mortgagee over the sale proceeds.

Ratio Decidendi: A statutory first charge for tax dues created by law prevails over a pre-existing mortgage and can be enforced against the realised sale proceeds notwithstanding secured creditor claims.

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