Priority of sales tax arrears over secured mortgage claims, with partners personally liable for firm tax dues.

Sales tax arrears recoverable as arrears of land revenue can take priority over a bank's secured mortgage claim where the revenue statutes expressly give State dues precedence over other debts and claims. The analysis also confirms that partners of a firm may be personally liable for firm sales tax arrears because a partnership has no separate existence from its partners and the governing partnership and tax laws impose joint and several liability, allowing partnership property and partners' property to be proceeded against for recovery.

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Issues: (i) Whether sales tax arrears due to the State had precedence over the bank's secured claim under the equitable mortgage; (ii) Whether the partners of the firm were personally liable for the firm's sales tax arrears.

Issue (i): Whether sales tax arrears due to the State had precedence over the bank's secured claim under the equitable mortgage.

Analysis: The liability under the Karnataka Sales Tax Act was recoverable as arrears of land revenue, and the Karnataka Land Revenue Act gave the State's recoverable dues precedence over other debts, demands and claims, including those founded on mortgage. The common law priority of State debts was also recognised, and the statutory scheme expressly extended priority to moneys recoverable under the revenue laws.

Conclusion: The State's claim had priority over the bank's secured mortgage claim.

Issue (ii): Whether the partners of the firm were personally liable for the firm's sales tax arrears.

Analysis: A partnership firm has no existence apart from its partners, and the Partnership Act makes each partner jointly and severally liable for acts of the firm. The later insertion of the provision in the Sales Tax Act declaring the firm and each partner jointly and severally liable was treated as reinforcing, not creating retrospectively, the underlying liability. The statutory position and the pending execution of the decree meant the partners' property could also be proceeded against.

Conclusion: The partners were personally liable for the firm's sales tax arrears.

Final Conclusion: The bank could not obtain relief against the State's preferential tax claim, and the mortgage property remained liable to be proceeded against for recovery of the sales tax dues before satisfaction of the bank's decree.

Ratio Decidendi: Statutory provisions making sales tax recoverable as arrears of land revenue can confer priority over unsecured and secured private claims where the revenue law expressly so provides, and partners are personally liable for firm debts when the governing partnership and tax law impose joint and several liability.

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