Preferential debt treatment for assessed sales tax turns on service of demand, not merely on the return due date.

Sales tax payable by a dealer under the Bengal Finance (Sales Tax) Act, 1941 was treated as an interim self-assessed payment when the return was filed, while any further balance arose only on assessment under section 11 and became recoverable on service of a notice of demand. For the priority rule in section 230(1)(a) of the Indian Companies Act, a tax must be both due on the winding-up date and become due and payable within the preceding twelve months. On that construction, the assessed balance was not due merely when the return fell due; it became a concrete recoverable debt only when the notice of demand was served, which brought it within preferential debt treatment.

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Issues: Whether the assessed sales tax demand constituted a preferential debt in winding up under section 230(1)(a) of the Indian Companies Act, and when such tax became due and payable for the purpose of priority.

Analysis: The decisive question was whether the balance of sales tax remaining unpaid after returns had been filed and part payment made became a concrete debt only upon assessment and service of a notice of demand, or whether it had become due and payable earlier when the return fell due. The statutory scheme of the Bengal Finance (Sales Tax) Act, 1941 showed that the dealer's payment with the return under section 10(3) was an interim payment on the dealer's own estimate, while the further balance, where a return was incorrect or incomplete, arose only on assessment under section 11 and was recoverable on service of notice of demand. Section 230(1)(a) of the Indian Companies Act protects only revenue and taxes that are both due on the winding-up date and have become due and payable within the preceding twelve months. On that construction, the assessed balance became a recoverable debt only when the notice of demand was served, not when the return became due.

Conclusion: The assessed balance of sales tax was a preferential debt and was entitled to priority, because it became due and payable on service of the notice of demand within twelve months before the winding-up order.

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