Non-filing of ITC-03 - does it attract penalty u/s.125

Dear Sir,

The following facts cannot be denied :-

(i) Filing ITC-3 is mandatory.

(ii) Here the offence committed is non-filing of return and NOT delay in filing return.

Statutory position

125. General penalty.

"Any person, who contravenes any of the provisions of this Act or any rules made thereunder for which no penalty is separately provided for in this Act, shall be liable to a penalty which may extend to twenty-five thousand rupees."

The word, :"SHALL" stands for mandatory imposition of penalty and the word, 'MAY' stands for discretionary power to the Adjudicating Authority and NOT a mandatory fixed penalty of Rs.50000/- (25000 + 25000/-).

After invocation of Section 125 in the SCN, the Proper Officer (Adjudicating Authority) is legally bound to impose penalty. The Adjudicating Authority has no power to allow the offender/noticee go scot free.

Keeping in view of a procedural lapse (having NOT availed ITC and hence no revenue loss involved), you can request for relief in the form of minimum penalty for which the Proper Officer has power. To request for complete waiver of penalty is asking for the moon in this scenario.

In my view, this is the practical approach and there is no other escape route.

Sir,

Sri Kasturi Sethiji has clearly explained the consequences of the issue in this query. However, I wish to express my views as follows.

As per the query, there was no availment of ITC before switching over to the Composition Scheme, and therefore ITC-03 was not filed, which is a procedural lapse, not involving willful fraud or misleading facts. Section 18(4) of the CGST Act explicitly dictates that a person switching over to the composition scheme must pay an amount equal to the ITC availed on inputs or capital goods held in stock. Since, in your client's case, ITC was never availed of, the primary requirement to reverse credit was never triggered. Hence, zero revenue implication may not require levying an extended penalty by invoking Sec. 125. If there is no ITC in the Electronic Credit Ledger or the physical stock implies reversal, then omitting Form ITC-03 carries no legal consequence, including issuing an SCN or initiating recovery proceedings u/s 73 or 74.

You can cite Section 126(1), which mandates that no officer shall impose a penalty for minor breaches of tax regulations or procedural omissions where there is no fraud or gross negligence and no revenue loss. During the P.H., these facts may be brought to the notice of the AA for any relief or a minimal imposition of a penalty.

Sir,

Response to Point No. 2.1

Sri Sethiji Sir,

Your view is exactly correct. In some administrations, this system of different officers is being followed. However, it is not widely observed.

In the above case, the AA must understand the veracity of the mistake that happened and properly pass the order.

Profuse thanks to both the experts for their valuable suggestion. I will meet the Suptt. and update.