Discretionary TDS penalty under U.P. VAT law may not survive when default is voluntarily cured with interest before notice.

Penalty under Section 34(8) of the U.P. VAT Act, 2008 is discretionary, because the provision uses "may" for levy and does not prescribe any minimum penalty. The assessing authority must consider the nature and extent of the default and the assessee's conduct before imposing penalty. Where the assessee voluntarily deposits the entire deducted tax with interest before notice and before detection by the revenue, the default is treated as cured and penal action may not be justified. On that reasoning, the penalty could not be sustained and relief followed.

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Issues: (i) Whether penalty under Section 34(8) of the U.P. VAT Act, 2008 is mandatory or discretionary; (ii) Whether penalty could still be imposed when the assessee had, before issuance of notice, deposited the entire deducted tax together with interest.

Issue (i): Whether penalty under Section 34(8) of the U.P. VAT Act, 2008 is mandatory or discretionary.

Analysis: The provision uses the word "may" for the levy of penalty and "shall" only for the consequence of compliance after a penalty order is made. Reading the language in its ordinary grammatical sense, the assessing authority is vested with discretion both in deciding whether penalty is warranted and, if so, in determining the quantum up to the statutory ceiling. The absence of a minimum penalty and the need to consider the nature of default, its extent, and the assessee's conduct further indicate that penalty is not automatic upon every default.

Conclusion: Penalty under Section 34(8) is discretionary and not mandatory.

Issue (ii): Whether penalty could still be imposed when the assessee had, before issuance of notice, deposited the entire deducted tax together with interest.

Analysis: The assessee rectified the default on its own before any notice was issued and before the revenue detected the default. In such circumstances, no meaningful prejudice survived to justify penal action, particularly where the loss to the revenue had already been made good with interest. The earlier view treating belated deposit with interest as not necessarily sufficient to avoid penalty was distinguished on its facts and confined accordingly.

Conclusion: Penalty was not justified on the facts, because the default had been voluntarily cured with interest before notice and before detection by the revenue.

Final Conclusion: The revision succeeded, the penalty could not be sustained, and the assessee obtained relief on both questions of law.

Ratio Decidendi: Under Section 34(8) of the U.P. VAT Act, 2008, penalty for failure to deduct or deposit TDS is discretionary, and prior voluntary correction of the default with interest before notice may negate the justification for imposing penalty.

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