TaxTMI 
TaxTMI 
Non-filing of ITC-03 - does it attract penalty u/s.125
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....on-filing of ITC-03 - does it attract penalty u/s.125<br> Query (Issue) Started By: - Raam Srinivasan Swaminathan Kalpathi Dated:- 8-10-2026 Last Reply Date:- 9-10-2026 Goods and Services Tax - GST<br>Got 5 Replies<br>GST<br>Client with rental income below Rs.50 lakhs had opted for composition scheme. As no ITC was availed against the said supply Form ITC-03 was not uploaded at the time of migrati....
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....on. To recall the relevant provisions Sec.18(4) - Where a registered person who has availed of ITC opts to pay tax under Section 10 ...., he shall pay an amount by way of debit to the ECL equivalent to the credit of ITC..... Rule 3(3) Any RP who opts to pay tax under Section 10 shall electronically file.... Rule 44(3) relates to stocks for which invoices are not available. The clien....
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....t has not availed any ITC relating to the output supply - leasing of property. Department has issued SCN for non-filing of Form ITC-03. Reply was filed highlighting the above. We have now received PH proposing Sec.125 penaly of Rs. 25,000 X 2. Sincerely request experts to provide their view on the stand to be adopted during PH. Thanks Reply By KASTURI SETHI: The Reply: Dear Sir, T....
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....he 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 whic....
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....h 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 Ad....
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....judicating 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 ap....
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....proach and there is no other escape route. Reply By KALLESHAMURTHY MURTHY K.N.: The Reply: 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 lap....
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....se, 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 m....
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....ay 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 re....
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....gulations 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. Reply By KASTURI SETHI: The Reply: Sh.Kalleshamurthy Murthy Ji, Sir, If the SCN Issuing Authority and Adjudicating Authority are the same, the Noticee cannot hope for relie....
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....f under Section 126 (1). Both must not be same as per principles of natural justice. For fair justice both must be different. In this case, neither revenue loss is involved nor mens rea is present. Reply By KALLESHAMURTHY MURTHY K.N.: The Reply: Sir, Response to Point No. 2.1 Sri Sethiji Sir, Your view is exactly correct. In some administrations, this system of different office....
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....rs 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. Reply By Raam Srinivasan Swaminathan Kalpathi: The Reply: Profuse thanks to both the experts for their valuable suggestion. I will meet the Suptt. and update.<br> Discussion Forum - Knowledge Sharing ....