Discretionary sales tax penalty cannot stand for a technical TDS default lacking intentional non-compliance.

Penalty under section 25-B of the Haryana General Sales Tax Act was held unsustainable where the contractee's failure to deduct tax at source was found to be only technical and not intentional. The provision's use of "may" in sub-section (5) makes penalty discretionary rather than automatic, so non-compliance does not by itself justify punishment. Once the Tribunal found that the tax was ultimately deposited and the default lacked deliberateness, mens rea was excluded and the foundation for penalty proceedings disappeared. The penalty was therefore liable to be cancelled in full in favour of the assessee.

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Issues: Whether penalty under section 25-B of the Haryana General Sales Tax Act, 1973 was justified where the contractee failed to deduct tax at source but the default was found to be technical and not intentional.

Analysis: Section 25-B obliges a contractee executing a works contract involving transfer of property in goods to deduct tax at source and deposit it with the State Government. The penalty provision under sub-section (5) is discretionary, as indicated by the use of the word "may", and therefore penalty is not automatic in every case of non-compliance. Once the Tribunal itself found that the default was of a technical nature and that the tax had ultimately been deposited, the element of deliberateness or mens rea stood excluded. In that situation, the very basis of penalty proceedings was weakened and there was no legal justification to sustain the penalty.

Conclusion: The penalty was not sustainable and ought to have been cancelled in full; the question was answered in favour of the assessee.

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