Khemka & Co. (Agencies) Pvt. Ltd. & Ors. v. State of Maharashtra & Ors. (AIR 1975 SC 1549)

Question: Can the State Sales Tax Act be used to punish a dealer for tax due under the Central Sales Tax Act (CST Act), 1956? The Supreme Court said no. If the sale is under the Central Act, the penalty must also come from the Central Act. Importing State penalty rules is not allowed.

• Core holding: State Act penalty cannot be levied for Central Act tax.
• Tool used: ejusdem generis—read general words in line with the statute’s scheme.
• Outcome: Assessee’s appeal allowed; levy under State Act set aside.

1. Are CST Act assessees liable to penalty under the State Sales Tax Act?

• Ejusdem generis: When general words follow specific ones, they are read as limited to the same kind or class. Courts first find the genus—the common thread.
• Statutory scheme controls: Powers and penalties must flow from the statute that governs the transaction (here, the Central Act).

The Supreme Court held that State Act penalties cannot be used to punish delay in paying tax that is payable under the Central Sales Tax Act. Section 9(2) does not carry State penalty provisions into the Central Act. The governing statute must provide its own penalty. Therefore, the levy of penalty under the State Act was invalid, and the assessee’s appeal succeeded.

Read Section 9(2) in harmony with the CST Act. General words cannot override the clear scheme: liability and penalty must come from the same statute. The Court used ejusdem generis to keep general language within the genus of the Central Act’s design.

• Statute discipline: Stops mixing penalty regimes across Central/State laws.
• Taxpayer protection: Ensures penalties exist only where the governing law provides them.
• Clean interpretation: Confirms careful use of ejusdem generis in tax statutes.

Mnemonic: “ONE LAW, ONE CLAW”

• ONE LAW: The governing Act (CST) controls.
• ONE CLAW: Penalty “claw” must come from that same Act.

3-Step Hook:

1. Identify: Which statute governs the sale?
2. Locate: Does that statute create a penalty?
3. Limit: Keep general words within that statute’s scheme.

Issue: Can State Act penalties apply to CST dues?

Rule: Use ejusdem generis and the statute’s scheme—liability and penalty stay within the governing Act.

Application: Section 9(2) does not import State penalties; reading it so would break the CST framework.

Conclusion: Penalty under State Act not applicable; assessee’s appeal allowed.

Central Sales Tax Act, 1956

Central law for inter-State sales; governs liability and procedure.

Section 9(2)

Provision borrowing State machinery for assessment/collection—does not bring in State penalties.

Ejusdem Generis

General words take colour from specific words—stay within the same class/kind.

Penalty

Punitive amount for breach/delay; must be authorised by the governing statute.