Timing changes the statutory route, the penalty exposure and the paperwork. A payment made before a GST demand show cause notice is served may keep the properly paid amount out of the notice process. After a notice is served, payment can still close that notice within a prescribed window, but only if the required tax, interest, penalty and timing conditions are met.
Do not treat “voluntary payment” as a magic label. The financial year, section cited, grounds, payment date, notice-service date, amount paid and the version of the Central Goods and Services Tax (CGST) law applicable to that period determine the result.
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The short answer: what changes when the notice is served?
Before service, sections 73(5) and 74(5) of the CGST Act provide a route for paying an amount based on the taxpayer’s own ascertainment or an amount worked out by the proper officer. The taxpayer reports the payment in FORM GST DRC-03; Rule 142 provides for an officer’s acknowledgement in DRC-04 when the pre-notice conditions are met.
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After service, sections 73(8) and 74(8) provide separate notice-stage payment routes. A qualifying payment within the statutory 30-day window can conclude proceedings for that notice, with the applicable penalty treatment depending on the section. The payment is reported through DRC-03 and the officer may issue DRC-05 to record conclusion of proceedings under Rule 142(3).
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The figures below come from the CBIC-hosted statutory text. That online consolidation may not show every later amendment. Confirm the wording, commencement date and applicable demand track for the relevant tax period before relying on a percentage or deadline.
| Comparison point | Before service of a show cause notice | After service of a show cause notice |
|---|---|---|
| Statutory route | Sections 73(5) or 74(5), based on self-ascertainment or an amount ascertained by the proper officer. | Sections 73(8) or 74(8), subject to the notice, prescribed components and statutory time window. |
| Section 73 amount in the cited text | Tax, section 50 interest and a penalty of 10% of tax or ₹10,000, whichever is higher. Verify the version applicable to the period. | Tax and interest paid within the qualifying 30-day route; the cited text provides no penalty and conclusion of proceedings for that notice. |
| Section 74 amount in the cited text | Tax, section 50 interest and a 15% penalty before notice. Verify the current applicable text. | Tax, interest and a 25% penalty within 30 days of issue of notice in the cited text. The same text describes a 50% penalty when paid within 30 days of communication of an order. |
| Taxpayer form | FORM GST DRC-03. | FORM GST DRC-03 for the qualifying payment. |
| Officer form | DRC-04 acknowledgement for qualifying pre-notice payment. | DRC-05 may conclude proceedings for the notice under Rule 142(3). |
| What remains open | A shortfall can still be pursued; the cited section 74 text expressly allows a notice for an amount not paid or paid short. | Payment closes only the notice and amounts covered by its statutory conditions. Other periods, issues or unpaid balances remain separate. |
The governing Act text is available from the Central Board of Indirect Taxes and Customs (CBIC). Treat the table as a comparison of the cited provisions, not as a substitute for checking the law in force for your case.
What “voluntary payment” means before notice
Section 73: the non-fraud demand track in the cited text
Under the cited section 73(5) wording, a taxpayer who pays tax, section 50 interest and the specified penalty before service of notice can avoid the notice-stage process for the amount properly paid. The text states a penalty of 10% of tax or ₹10,000, whichever is higher. Because the amount is version-sensitive, identify the tax period and check whether an amendment changed the provision before calculating.
The minimum-penalty wording matters. It is not always 10%: where 10% of the tax is below ₹10,000, the cited text uses ₹10,000 as the higher amount. The calculation is on tax; interest is a separate component.
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Section 74: the fraud-related track in the cited text
The cited section 74(5) wording provides a pre-notice route requiring tax, section 50 interest and a 15% penalty. Section 74 is a different statutory track from section 73, so a taxpayer cannot choose the lower-cost route merely by describing a payment as voluntary. The notice or officer communication, the alleged grounds and the law applicable to the period control the characterization.
Payment does not erase a disputed shortfall
Paying an amount you have calculated does not prevent the department from examining whether the calculation is complete. If the proper officer considers a section 74 payment deficient, the cited text permits a notice for the unpaid or short-paid amount. A similar practical risk exists wherever tax, interest, penalty, period or issue coverage is incomplete. Preserve the working papers that show how each figure was derived.
What changes after a show cause notice?
Section 73 notice-stage payment
The cited section 73(8) route allows payment of the specified tax and interest within 30 days of the notice under the qualifying provision. It states that no penalty is payable through that route and that proceedings for the notice are concluded. Check the operative statutory wording for whether the relevant trigger is issue, service or another defined event, and retain proof of the date.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchSection 74 notice-stage payment
The cited section 74(8) wording describes a 25% penalty where tax, interest and penalty are paid within 30 days of issue of the notice. The same statutory text describes a later 50% penalty if the tax, interest and penalty are paid within 30 days of communication of an order. These percentages must be checked against the current law and the notice’s stated section before payment.
Closure is conditional, not automatic
A payment after notice is not a general settlement of every GST exposure. The notice-stage route depends on all prescribed components being paid within the applicable window and being correctly linked to the notice. A partial deposit, a payment tagged to the wrong period or a payment made after the statutory deadline may not produce the stated closure consequence.
Forms and the officer’s response
DRC-03: reporting the payment
Use the GST portal’s DRC-03 process to report the payment, selecting the relevant reason and providing the tax period and component details. CBIC Instruction No. 01/2022-23 states that voluntary DRC-03 payments are initiated by taxpayers using their own GST portal credentials. Keep the acknowledgement number, challan details, date, amount and allocation between tax, interest and penalty.
DRC-04: pre-notice acknowledgement
Rule 142 provides for DRC-04 as an acknowledgement where a payment made before notice satisfies the applicable requirements. An acknowledgement is evidence of the reported payment; it is not permission to omit any balance later found payable. Match the acknowledgement to the exact period, section and amount you intended to discharge.
DRC-05: conclusion after qualifying notice-stage payment
Rule 142(3) describes DRC-05 for concluding proceedings in respect of a notice after a qualifying payment. Do not assume that filing DRC-03 alone proves closure. Check whether the officer has issued the applicable communication and whether the notice’s tax, interest and penalty have been paid in full.
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The relevant procedural rule is in the CBIC-hosted CGST Rules, Chapter XVIII, Rule 142.
Payment choice during search, inspection or investigation
CBIC Instruction No. 01/2022-23 addresses deposits made during search, inspection or investigation. It states: “Voluntary payment of tax before issuance of show cause notice is permissible in terms of provisions of Section 73(5) and Section 74 (5) of the CGST Act, 2017.” The instruction directs officers to respect taxpayer choice and not coerce payment.
This creates an important practical distinction: a taxpayer-initiated DRC-03 payment is different from a deposit made under pressure. Use your own GST portal credentials, keep contemporaneous records of the figures and correspondence, and obtain professional advice if the amount or circumstances are disputed. The instruction is dated 2022, so read it together with later amendments and the law applicable to the period. The full document is available in CBIC Instruction No. 01/2022-23.
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1Fix the driver behind crashes, sound loss and screen glitches2Clear out junk files and repair common Windows errors3Scan for outdated or missing drivers - takes under a minuteA time-limited historical exception: section 128A
Section 128A is not a standing alternative to the ordinary pre-notice and post-notice rules. CBIC Circular No. 238/32/2024-GST describes a conditional waiver of interest or penalty, or both, for specified section 73 demands relating to financial years 2017-18, 2018-19 and 2019-20.
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The circular says section 128A and Rule 164 took effect on 1 November 2024 and identifies 31 March 2025 as the notified date for full payment of tax under the described route. That date has passed, so the scheme should be treated as a historical, defined cohort rather than an open extension for a current notice. The circular also discusses a distinct six-month window in a redetermination situation; that case has its own conditions and must be checked in the circular and rule.
Read the complete CBIC Circular No. 238/32/2024-GST before asserting that a particular demand qualifies.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to decide which rule applies
- Identify the period. Record the financial year, tax period and return or transaction involved. Penalty percentages and waiver provisions can depend on the period.
- Find the statutory section. Read the notice or communication for section 73, section 74 or another provision. Do not assume every GST demand follows sections 73 or 74.
- Establish the legal date. Determine whether a notice was actually served and record its service or communication date, as well as its issue date. The applicable subsection may use a specific trigger.
- Separate the components. Calculate tax, section 50 interest and any penalty independently. Note the basis, rate, dates and rounding used for each.
- Check whether payment is complete. Confirm that the amount covers the entire notice or only a stated part. A partial payment can leave proceedings and liability open.
- File and preserve DRC-03 evidence. Use the taxpayer’s credentials, save the ARN and challan, and describe the period and allocation clearly.
- Verify the officer’s response. Look for DRC-04 in a qualifying pre-notice case or DRC-05 after a qualifying notice-stage payment. Absence of the expected communication is a reason to follow up, not proof that every issue is closed.
- Obtain advice where characterization is disputed. A GST practitioner or tax lawyer can test limitation, arithmetic, alleged conduct, evidence, payment allocation and the effect of amendments.
Illustrations of the timing difference
Illustration 1: section 73 amount paid before notice
Assume, solely for illustration, that the applicable law is the cited section 73 version, tax is ₹200,000 and section 50 interest is ₹8,000. Ten percent of tax is ₹20,000, which is higher than ₹10,000. A qualifying pre-notice payment would therefore be tax plus ₹8,000 interest plus the applicable ₹20,000 penalty under that cited wording. This arithmetic is not a ruling on the law for any particular year; confirm the applicable version first.
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If a qualifying section 73 notice has been served and the taxpayer pays the specified tax and interest within the statutory notice-stage window, the cited section 73(8) route provides no penalty and conclusion of proceedings for that notice. Missing the window or underpaying can remove that result.
Illustration 3: section 74 is a different calculation
For a section 74 matter, the cited pre-notice wording uses a 15% penalty, while the cited notice-stage wording uses 25% within the stated 30-day period and 50% within 30 days of an order. A taxpayer cannot apply the section 73 calculation simply because payment is made quickly.
Common mistakes that create avoidable exposure
- Using an old percentage without checking commencement. Online Act consolidations may not display every amendment. Tie every figure to the tax period and current text.
- Calling any deposit “voluntary.” The legal route depends on the section and facts, not the label in a covering letter.
- Ignoring service evidence. Email, portal delivery and other permitted modes can affect when a notice is treated as served. Preserve the actual communication and date.
- Paying tax but not interest or penalty. Notice-stage closure generally requires the complete statutory bundle, not tax alone.
- Assuming DRC-03 equals final settlement. The form reports payment; DRC-04 or DRC-05 and the statutory conditions determine the procedural consequence.
- Applying a historical waiver to a new demand. Section 128A was tied to specified years, dates and conditions; it is not a general post-notice discount.
- Overlooking other periods or issues. Closure for one notice does not discharge unrelated tax periods, separate grounds or an unpaid shortfall.
Records to keep with the payment decision
- The notice, intimation or officer calculation, including issue and service evidence.
- A period-wise reconciliation of tax, interest and penalty.
- DRC-03 ARN, challan and electronic cash or credit ledger entries.
- DRC-04 or DRC-05, if issued, and all follow-up correspondence.
- Working papers supporting self-ascertainment, disputed amounts and payment allocation.
- Copies of the statutory text, rule and circular relied on, marked with the access date and amendment status.
These records allow a practitioner to determine whether the payment covered the correct demand and whether the officer’s subsequent action matches the statutory route.
Bottom line
Paying GST before a show cause notice can avoid the notice-stage route for the amount properly paid, but the required penalty differs between sections 73 and 74. After notice, a separate 30-day payment mechanism may close that notice, with no penalty in the cited section 73 route and reduced penalty percentages described for section 74, provided every condition is met. File DRC-03, preserve the date and allocation, and verify DRC-04 or DRC-05. Before relying on any percentage, deadline or waiver, check the exact provision and commencement date for the relevant financial year.
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