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2013 (12) TMI 1477 - HC - VAT and Sales TaxRecovery of sales tax dues of the company in liquidation. - priority to be observed in the matter of payment of debts in the case of winding up - state act versus central act - Held that:- When the law is one made with reference to entries in the concurrent list, where both Parliament and the State Legislature are sovereign powers in the matter of making laws, again in view of article 254 of the Constitution unless it be a law made by the State, which is reserved for the assent of the President and the assent is received, the State law, would otherwise if it is repugnant to the law made by Parliament, must make way whether the Parliamentary legislation is before or after the legislation made by the State. We are also not impressed by the contention of the appellant with reference to section 537 of the Companies Act. It is true that sub-section (2) of section 537 provides that nothing in that section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Govern ment. It is true, under section 537(2), when the company is being wound up the embargo in sub-section (1) of section 537 is not made applicable for proceedings for recovery of tax payable to the Government. In the facts of this case, we must notice that there is no case for the appellants that recovery proceedings commenced by the State proceeded beyond the stage of attachment. The sale held by the company court is for the benefit of all the creditors. The manner in which sale proceeds is to be shared among the various creditors is indicated in the provisions contained in the Companies Act. They include sections 529A and 530 of the Act. The priority itself is to be decided by the company court under section 446(2)(d). If the State is allowed to proceed against the property, despite the sale held as free of encumbrances, the result would be that the sale would become vulnerable and it would also be against what had been held out to the auction purchaser under the aegis of the company court that the sale is being held free of encumbrances. Having regard to the provisions contained in sections 529A and 530, the intention is clear that the law of the land is that the claim of the State must with regard to the amounts due as taxes be subject to the amounts due to the secured creditors and workers. If the sale is held free of encumbrances and if the State is allowed to pursue its claim as against the property, it would naturally bring the sale under a cloud and there would be no end to the litigation which would in the ultimate analysis be not only against the interests of persons whose interests are sought to be secured by the Companies Act on the basis of priority, but against the scheme of the Companies Act. On this reasoning we find that the impugned order does not suffer from infirmity. - Decided against the revenue.
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