Judgment 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. (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 counsel for the parties and perused the record. 5. We have heard learned counsel for the parties and perused the record. Section 25-B of the Act, which provides for deduction of tax at source in certain cases and levy of penalty, reads as under: "25-B. Special provisions relating to deduction of tax at source in certain cases. -- (1) Notwithstanding anything to the contrary contained in any other provisions of this Act, any contractee responsible for making any payment or discharging any liability on account of the valuable consideration payable for the execution of a works contract involving transfer of property in goods (whether as goods or in some other form), shall, at the time of credit to the account of or payment to the payee of such valuable consideration in cash, by cheque, by adjustment or in any other manner whatsoever, deduct tax therefrom at the rate not exceeding ten percentum of the amount paid or credited, as the case may be, as may be specified by notification by the Government: Provided that no deduction shall be made under this section where the amount or the aggregate of the amounts paid or credited or likely to be paid or credited during the year by such person to a contractor does not or is not likely to exceed one lakh rupees in a case. (2) Any tax deducted under Sub-section (1) shall be paid to the State Government in such manner and within such time as may be prescribed. (3) The person making any deduction of tax under Sub-section (1) and paying it to the State Government shall issue a certificate of tax deduction to the payee in such form as may be prescribed. (4) Any tax deducted under Sub-section (1), and paid to the State Government shall be provisional and shall, on production of the certificate of tax deduction issued under Sub-section (3) by the payee, be deemed to be tax paid by the payee for the relevant period and shall be given credit in his assessment accordingly. (4) Any tax deducted under Sub-section (1), and paid to the State Government shall be provisional and shall, on production of the certificate of tax deduction issued under Sub-section (3) by the payee, be deemed to be tax paid by the payee for the relevant period and shall be given credit in his assessment accordingly. (5) If any person contravenes the provisions of Sub-section (1) or Sub-section (2) or Sub-section (3), the Commissioner or any person appointed to assist him under Sub-section (1) of Section 3 may, by an order in writing, direct such person to pay, in addition to the sum deducted, if any, a penalty not exceeding the amount of tax deductible under Sub-section (1): Provided that no such penalty shall be imposed on any person unless he has been given an opportunity of being heard. (6) The tax deducted by a contractee under Sub-section (1), remaining unpaid after the due date of payment, shall be recoverable from him as arrears of land revenue." 6. An analysis of the provisions reproduced above shows that a person, who assigns works contract involving transfer of property in goods is under a duty to deduct tax at the rate to be specified by the State Government (not exceeding 10 per cent of the amount payable to the contractor) from the payment to be made to the contractor. The amount of tax so deducted is required to be deposited with the State Government. The contravention of Sub-section (1) or (2) or (3) makes the contractee liable to penalty not exceeding the amount of tax deductible under Sub-section (1). To put it differently, the Commissioner or any other person appointed to assist him can impose penalty if it is found that the person, who is obliged to deduct tax at source, has acted in contravention of Sub-section (1) or (2) or (3) of Section 25-B. The use of the word "may" in Sub-section (5) shows that the Legislature did not want to make levy of penalty obligatory in each and every case and the competent authority has been vested with the discretion in the matter of imposition of penalty. In other words, the competent authority may not impose penalty if it is satisfied with the explanation given by the contractee. 7. In other words, the competent authority may not impose penalty if it is satisfied with the explanation given by the contractee. 7. In I.T.R. No. 61 of 1995--Commissioner of Income-tax, Haryana, Rohtak V/s. Ashoka Dairy, Nilokheri decided on January 7, 2005, a division Bench of this Court, of which one of us (G.S. Singhvi, J.) was a member, interpreted Sections 44-AB and 271-B of the Income-tax Act, 1961 (for short, "the 1961 Act") and held: "A reading of Section 44-AB reproduced above shows that it imposes a duty on every person carrying on business and/or profession to get his accounts audited by an accountant before the specified date and furnish the report of such audit in the prescribed form. Section 271-B empowers the Assessing Officer to impose penalty in case the concerned person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or to furnish the audit report as per the requirement of Section 44-AB. However, there is nothing in the language of that section from which it can be inferred that levy of penalty is mandatory in all cases of non-compliance of Section 44-AB and that in no case, the Assessing Officer can accept the cause shown by the assessee. Rather, the use of the expression reasonable cause (this expression was omitted by Taxation Law Amendment and Miscellaneous Provisions Act, 1986) and the word may shows that it is only an enabling provision and the Assessing Officer is not under an obligation to impose penalty in each and every case ignoring the explanation given by the assessee or cause shown by it for delayed filing of the return and/or audit report. To put it differently, the Assessing Officer has the discretion in the matter of imposition of penalty and he may not impose penalty if he is satisfied with the explanation given by the assessee for not getting its account of previous year audited by an accountant before the specified date and/or filing thereof along with the return." 8. To put it differently, the Assessing Officer has the discretion in the matter of imposition of penalty and he may not impose penalty if he is satisfied with the explanation given by the assessee for not getting its account of previous year audited by an accountant before the specified date and/or filing thereof along with the return." 8. In K.C. Builders V/s. Assistant Commissioner of Income-tax, 2004 265 ITR 562 the Supreme Court interpreted the provisions of Sections 271(1)(c), 276-C(2), 277 and 278-B of the 1961 Act and held that in view of the finding recorded by the Tribunal that there was no concealment of income warranting levy of penalty, the assessee could not have been subjected to criminal liability under Section 420 of the Indian Penal Code. The relevant extracts of that judgment are reproduced below: "The appellants cannot be made to suffer and face the rigours of criminal trial when the same cannot be sustained in the eyes of law because the entire prosecution in view of a conclusive finding of the ITAT that there was no concealment of income became devoid of jurisdiction and under Section 254 of the Act, a finding of the ITAT supersedes the order of the assessing officer under Section 143(3) more so when the assessing officer cancelled the penalty levied. ... Once the finding of concealment and subsequent levy of penalties under Section 271(1)(c) of the Act has been struck down by ITAT the assessing officer has no other alternative except to correct his order under Section 154 of the Act as per the directions of ITAT as in such a case there is no concealment in the eyes of law and, therefore, the prosecution cannot be proceeded with by the complainant and further proceedings will be illegal and without jurisdiction. If the trial is allowed to proceed further after the order of ITAT and the consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of the Tribunal exhibited as a defence document." 9. In the light of the above, we shall now consider whether the penalty imposed by the Assessing Officer and confirmed by JETC (A), which was subsequently reduced by the Tribunal is legally sustain-able. In the light of the above, we shall now consider whether the penalty imposed by the Assessing Officer and confirmed by JETC (A), which was subsequently reduced by the Tribunal is legally sustain-able. A recapitulation of the facts shows that the Assessing Officer did not feel satisfied with the explanation given by the assessee and imposed penalty of Rs. 15,00,000 and Rs. 8,00,000 for the assessment years 1989-90 and 1990-91 respectively. The JETC (A) confirmed the penalty order, but the Tribunal reduced the quantum of penalty to Rs. 2 lacs and Rs. 1 lac respectively by observing that the default was of a technical nature. 10. In our opinion, the finding recorded by the Tribunal about the nature of default committed by the assessee completely rules out the element of deliberateness or mens rea on the assessees part in the matter of deducting lump sum tax from the amount payable to M/s K.E.C. International Ltd. As a matter of fact, this finding is amply supported from the fact that the assessee had not deducted tax in view of the pending litigation and the fluid legal position. Therefore, there could be no justification, legal or otherwise to sustain the penalty. 11. We are further of the view that the Tribunal should have, in the face of its own finding that the default was not intentional, rescinded the penalty in its entirety because the very substratum of the penalty proceedings was demolished by virtue of the default being treated as technical. 12. In the result, the questions referred by the Tribunal are answered in favour of the assessee and against the department.