Tax arrears priority in winding up depends on due-and-payable timing; post-date penalty is not admissible.

Priority for tax arrears in winding up under section 530(1)(a) of the Companies Act, 1956 is limited to revenues, taxes, cesses and rates that are outstanding on the relevant date and that became due and payable within the preceding twelve months. Sales tax becomes due on the taxing event, not on assessment or demand, so arrears arising from sales outside that period do not qualify for preferential treatment. Penalty liabilities are crystallised as at the relevant date in winding up, and no fresh penal liability can accrue thereafter. Accordingly, priority for the sales tax arrears was denied, while only the penalty accrued up to the relevant date was admitted as an ordinary claim.

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Issues: (i) Whether sales tax arrears claimed by the taxing authority were entitled to priority under section 530(1)(a) of the Companies Act, 1956; (ii) Whether penalty relating to tax default, including penalty attributable to the period after the relevant date, was admissible in winding up.

Issue (i): Whether sales tax arrears claimed by the taxing authority were entitled to priority under section 530(1)(a) of the Companies Act, 1956

Analysis: Priority under section 530(1)(a) is available only to revenues, taxes, cesses and rates that are outstanding on the relevant date and that have both become due and become payable within the twelve months immediately preceding that date. In the winding-up scheme, the word "due" in the first limb means outstanding on the relevant date, but the second limb adds an independent temporal requirement. Sales tax, on the statutory scheme, becomes due when the taxing event occurs, namely the sale, though it may become payable later on assessment or demand. Since the sales tax in question related to sales long prior to the twelve-month period, the statutory conditions for preferential treatment were not satisfied.

Conclusion: The claim for priority on the sales tax arrears was rejected and the liquidator's refusal to grant priority was upheld.

Issue (ii): Whether penalty relating to tax default, including penalty attributable to the period after the relevant date, was admissible in winding up

Analysis: In a winding up of an insolvent company, liabilities are crystallised as on the relevant date and the liquidator cannot create a fresh penal liability merely because payment has not been made after that date. Penalty under a taxing statute may in some settings resemble interest, but it may also be punitive in character. On either view, a recurring penalty for non-payment after the relevant date is not admissible as a debt in winding up. The only part accepted was the penalty already accrued up to the relevant date, which was treated as an ordinary claim.

Conclusion: Penalty after the relevant date was inadmissible, but the penalty accrued up to the relevant date was allowed as an ordinary claim.

Final Conclusion: Preferential status for the sales tax dues was denied, while only the quantified penalty accrued up to the relevant date was admitted, leaving the remainder of the claim disallowed.

Ratio Decidendi: For priority under section 530(1)(a) of the Companies Act, 1956, a tax claim must be outstanding on the relevant date and must also have become due and payable within the preceding twelve months; sales tax becomes due on the taxing event, not merely on assessment or demand, and post-relevant-date penalty is not admissible in winding up.

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