The court emphasized that the imposition of penalties should be justified by the presence of deliberateness or mens rea, and in the absence of such elements, the penalty may not be sustained.

G.S.Singhvi, J.

1. In compliance of the direction given by this Court in S.T.C. No. 8 of 2001 decided on August 26, 2003 the Sales Tax Tribunal, Haryana (for short, "the Tribunal") has referred the following questions of law for its opinion:

"1. Whether the dealer has committed any default under Section 25-B(1) of the Haryana General Sales Tax Act, 1973 ?

2. Whether in the circumstances of the case, Sales Tax Tribunal is justified to uphold the penalties when the default is not wilful and tax has been ultimately deposited in the Treasury?"

2. While framing assessment in the case of M/s. National Hydro Electric Power Corporation Ltd., which is now known as Power Grid Corporation of India Ltd., (hereinafter described as "the assessee") for the year 1989-90, the Assessing Officer took note of the fact that the assessee had failed to fulfil its obligation to deduct 2 per cent lump sum tax in terms of Section 25-B of the Haryana General Sales Tax Act, 1973 (for short, "the 1973 Act") read with notification dated March 24, 1989 issued by the State Government from the amount payable to M/s. K.E.C. International Ltd., (hereinafter described as "the contractor") for executing works contract of erecting Moga-Bhiwani Transmission Line and issued notice dated February 25, 1993 proposing to impose penalty on the ground of violation of Sub-sections (1) and (2) thereof. In its reply, the assessee raised the following points:

"(i) The corporation did not fail to pay any tax to the State Government. In fact, there was no liability on the corporation to deduct any tax on the contract entered into with M/s. K.E.C. International Ltd.

(ii) The contract was divisible into two parts (i) Supply of goods, (ii) erection portion. In respect of the supply portion, the corporation became owner of the goods at Jaipur.

(iii) The entire goods were fabricated by the contractor at Jaipur and Bombay.

(iv) The contractor has already paid the demand.

(v) In view of the finding of the Supreme Court of India in the cases of Builders Association of India [1989] 73 STC 370 and Gannon Dunkerley & Co. [1993] 88 STC 204 there was no liability on the part of the contractee to deduct tax from the contractor.

(vi) There was bona fide reason for not deducting the tax and there was no mens rea at all on the part of the corporation."

3. The Assessing Officer did not accept the explanation given by the assesses and vide his order dated March 29, 1993, he imposed penalty of Rs. 15,00,000. By another order dated June 19, 1993, he imposed penalty of Rs. 8,00,000 on the assessee on account of violation of Sub-sections (1) and (2) of Section 25-B of the 1973 Act in relation to the assessment year 1990-91. The appeals filed by the assessee against the penalty orders were dismissed by the Joint Excise and Taxation Commissioner (Appeals), Hisar [for short, "JETC(A)"] vide his order dated April 16, 1998. However in the further appeals preferred by the assessee, the Tribunal vide its order dated January 21, 2000 substantially reduced the penalty imposed by the Assessing Officer by making the following observations:

"Penalty is leviable if the tax is not deducted at source. An amount equal to the tax involved in this case was deposited by contractor. It deposited the amount involved with the State as soon as it became aware of the fault and no loss was caused to the State. There can be either penalty or the deposit of the tax collected at source. The State cannot take both. As such default being of a technical nature the penalties are on higher side which are reduced to Rs. 2 lacs and Rs. 1 lac respectively. Appeals are disposed of accordingly." (underlining is ours)

4. The application filed by the assessee under Section 41(1) of the Act was dismissed by the Tribunal vide its order dated July 10, 2000 but in compliance of order dated August 26, 2003 passed in S.T.C. No. 8 of 2001, it referred the aforementioned questions for the opinion of this Court.

5. We have heard learned cou