Sections 73 and 74 of India’s Central Goods and Services Tax Act, 2017 cover tax that was not paid or was short-paid, erroneous refunds, and input tax credit wrongly availed or utilised. The practical dividing line is the conduct alleged: Section 73 applies where the case is not based on fraud, wilful misstatement or suppression of facts to evade tax; Section 74 is used when one or more of those fraud-related grounds is alleged. A section number in a notice is an allegation track, not proof that the allegation has been established.
The ordinary limitation periods are three years for a Section 73 order and five years for a Section 74 order, counted from the statutory starting event. Because the notice must precede the order by at least three months under Section 73 and six months under Section 74, the commonly quoted notice windows are 2 years 9 months and 4 years 6 months respectively. Those shortcuts can change when due-date notifications, erroneous-refund dates, court stays, exclusions, amendments or transition rules apply.
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What Sections 73 and 74 cover
Both provisions address the same broad categories of GST dispute:
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- tax not paid or short-paid;
- erroneous refunds; and
- input tax credit wrongly availed or utilised.
The distinction is the alleged reason for the shortfall. A notice under Section 73 alleges a non-fraud case. A notice under Section 74 alleges fraud, wilful misstatement or suppression of facts with an intent to evade tax. The authority still has to establish the factual and legal basis of the demand. Merely choosing Section 74 does not prove fraudulent conduct.
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Read the allegation paragraphs, not just the heading. They should identify the transactions, tax period, calculation, and facts said to amount to fraud, wilful misstatement or suppression. A notice that uses the word “fraud” without explaining the conduct or evidence deserves careful scrutiny in the reply.
Section 73 and Section 74 compared
| Issue | Section 73 | Section 74 |
|---|---|---|
| Conduct alleged | Reasons other than fraud, wilful misstatement or suppression of facts to evade tax | Fraud, wilful misstatement or suppression of facts to evade tax alleged |
| Order limitation | Three years from the due date for the relevant annual return, or three years from an erroneous refund | Five years from the corresponding statutory starting point |
| Minimum notice lead time | At least three months before the order deadline | At least six months before the order deadline |
| Common notice shorthand | 2 years 9 months from the relevant annual-return due date | 4 years 6 months from the relevant annual-return due date |
| Ordinary order penalty | 10% of tax or ₹10,000, whichever is higher | Penalty equal to the tax |
| Payment route after notice | Tax and interest paid within 30 days of notice generally avoids the penalty, subject to the statutory conditions | Tax, interest and 25% penalty paid within 30 days of notice can conclude the proceedings, subject to the statutory conditions |
| Payment route after order | Follow Section 73 and the actual order; do not assume the Section 74 concession applies | Tax, interest and 50% penalty paid within 30 days of communication of the order can conclude the proceedings, subject to the statutory conditions |
| If the fraud basis fails | Not applicable as an initial allegation | Section 75(2) requires determination as if the notice had been issued under Section 73; the shorter limitation can then become decisive |
This table is a statutory overview. The legally operative result for a particular notice depends on the relevant dates, amendments, exclusions and procedural history.
How the limitation clock is calculated
Use the statutory starting event
For tax not paid or short-paid, and for wrongly availed or utilised input tax credit, Sections 73(10) and 74(10) measure the order period from the due date for furnishing the annual return for the financial year to which the demand relates. The clock is not automatically measured from the date the taxpayer filed the return, the date an audit started, or the date the notice was received.
For an erroneous refund, the starting event is the date of that refund. A case involving several financial years or several refunds may therefore contain more than one limitation calculation.
Separate the order deadline from the notice deadline
The Act gives the proper officer a maximum period to determine the tax by order. It also requires the notice to be issued a specified minimum period before that order deadline. Under Section 73, the order period is three years and the minimum lead time is three months. Under Section 74, the corresponding periods are five years and six months.
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That is why practitioners often describe the ordinary latest notice dates as 2 years 9 months and 4 years 6 months from the annual-return due date. These are shorthand calculations, not independent limitation provisions. The actual calculation must use the notified annual-return due date, the applicable erroneous-refund date where relevant, and any lawful exclusion or extension.
Illustrative calculation
Assume, solely for illustration, that the notified annual-return due date for a financial year is 31 December 2023 and no exclusion or amendment applies. A Section 73 order would ordinarily be due by 31 December 2026, so the notice would need to be issued at least three months earlier. A Section 74 order would ordinarily be due by 31 December 2028, with the notice issued at least six months earlier. This example demonstrates the method; it does not establish the due date for any particular financial year.
Account for stays and other exclusions
Section 75 contains rules that can affect the computation, including exclusion of periods during which service of a notice or issuance of an order is stayed by a court or an Appellate Tribunal. Amendments, government notifications changing annual-return due dates, and the exact procedural history can also alter the result. Keep copies of stay orders, appeal orders, adjournment records and service evidence when checking limitation.
What a Section 73 notice means in practice
A Section 73 notice places the dispute on the non-fraud track. The authority may still allege negligence, a classification error, an incorrect valuation, reconciliation differences, or an ineligible credit; it simply is not relying on the three specified fraud-related grounds to evade tax.
Penalty exposure
If tax is ultimately determined under Section 73, the ordinary penalty is 10% of the tax or ₹10,000, whichever is higher. The minimum-amount rule matters in small disputes because ₹10,000 can exceed 10% of the tax.
Payment after notice
Section 73 provides a route under which the taxpayer can generally avoid the penalty by paying the tax and applicable interest within 30 days of the notice, while meeting the section’s other requirements and informing the department in the prescribed manner. Payment should be matched to the demand calculation: verify the tax period, tax head, interest computation and any credit or refund adjustment before treating the matter as closed.
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What to do if you disagree
A taxpayer who disputes the demand should file a point-by-point reply within the notice period, attach ledgers, invoices, returns, reconciliations and supporting correspondence, and identify calculation or limitation errors. Silence can allow the officer to proceed on the available record.
What a Section 74 notice means in practice
Section 74 is the longer and more punitive track because the notice alleges fraud, wilful misstatement or suppression of facts to evade tax. The notice should explain which conduct is relied on and how that conduct caused the tax shortfall, erroneous refund or disputed credit.
Penalty exposure
The ordinary Section 74 penalty is equal to the tax determined. That exposure is materially higher than the ordinary Section 73 penalty, which is why the factual basis for the fraud allegation is central to the response.
Reduced-penalty payment routes
The Act provides staged concessions rather than a blanket settlement promise. Paying the tax, interest and a 25% penalty within 30 days of the notice can conclude the proceedings when the statutory conditions are met. If the matter reaches an order, payment of the tax, interest and a 50% penalty within 30 days of communication of that order can provide the separate order-stage conclusion available under Section 74. Confirm the triggering date, amount and intimation requirements in the notice and the Act before relying on either route.
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Challenge the allegation, not only the arithmetic
A reply should address both the demand calculation and the elements said to constitute fraud, wilful misstatement or suppression. Explain the commercial documents, accounting treatment, disclosures in returns, correspondence with the department and any reasonable interpretation of an unsettled issue. A calculation that is correct cannot by itself establish fraudulent intent.
What happens if the Section 74 fraud allegation is not established
Section 75(2) addresses this specific situation. It states:
“Where any Appellate Authority or Appellate Tribunal or court concludes that the notice issued under sub-section (1) of section 74 is not sustainable for the reason that the charges of fraud or any wilful-misstatement or suppression of facts to evade tax has not been established against the person to whom the notice was issued, the proper officer shall determine the tax payable by such person, deeming as if the notice were issued under sub-section (1) of section 73.”
The consequence is not simply that the penalty is reduced. The proceeding is treated as a Section 73 matter, bringing the shorter notice limitation into play.
CBIC Circular 185/17/2022-GST explains that where a Section 74 notice is issued after the Section 73 notice period has expired, and the Section 74 basis is not sustained, the proceeding is time-barred under Section 73 and must be dropped. Therefore, a longer Section 74 window does not remain available if the fraud allegation fails. Check the Section 73 cutoff independently at the outset, even when the notice invokes Section 74.
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A practical limitation review: seven steps
- Identify the provision. Record whether the notice cites Section 73 or Section 74 and whether it is a notice, a statement, an order or a later communication.
- Map each demand to a period. List every financial year, tax period and erroneous-refund transaction separately. Do not assume one date applies to the entire notice.
- Find the correct starting date. For annual-return cases, locate the notified due date for the relevant annual return. For an erroneous refund, locate the refund date.
- Compute the order deadline. Apply the three-year Section 73 or five-year Section 74 period to each starting event.
- Apply the notice lead time. Work back three months for Section 73 or six months for Section 74, then compare that date with the notice issue date and the service record.
- Check exclusions and extensions. Review court or tribunal stays, statutory amendments, due-date notifications and any transition provision that affects the period.
- Test the fallback position. If Section 74 is challenged, calculate whether a Section 73 notice would still have been timely. Preserve the calculation and the documents supporting every date.
This checklist helps identify a limitation issue; it does not replace advice on the facts, applicable enactment or litigation strategy.
Forms and the GST portal record
Rule 142 provides for an electronic summary in Form GST DRC-01 with a demand notice under Section 73 or Section 74. It also refers to Form GST DRC-02 for a statement under the corresponding provisions, and to payment and closure forms including DRC-03 and DRC-05.
The consolidated Central Board of Indirect Taxes and Customs rules document available for this material is dated 1 January 2022. Portal labels, form fields and rule amendments may have changed. Before describing a form as current for a live matter, compare the notice, the portal record and the latest applicable rules.
Download the notice and every annexure from the portal, retain the acknowledgement showing the issue and service dates, and save payment challans and replies. A portal summary may not contain every calculation or relied-on document; request or obtain the underlying statement when needed.
Section 74A and the current-law transition
The comparison is period-sensitive because the 2024 amendments introduce Section 74A for determinations relating to financial year 2024-25 onward. Sections 73 and 74 remain the provisions for periods through financial year 2023-24 under the transition described in the amendment text.
Do not decide the applicable section solely from the date printed on the notice. A notice issued after a commencement date can still concern an earlier financial year governed by Sections 73 or 74. Conversely, a later-period demand may fall under Section 74A. For a live central-tax matter, verify the Central GST enactment, commencement notification, applicable State or Union Territory GST enactment and any transition language. The amendment text surfaced for this transition is an official Madhya Pradesh GST text, so it should not be treated as a complete substitute for checking the central and applicable state or UT law.
Common mistakes that weaken a response
- Counting from the filing date: the statute generally uses the annual-return due date, not the date the return happened to be filed.
- Using the notice date as the starting point: the notice date is an event to test against the statutory cutoff, not usually the event that starts the limitation clock.
- Applying the annual-return rule to an erroneous refund: that category uses the refund date as the statutory starting event.
- Assuming “Section 74” proves fraud: the allegation must still be supported and established.
- Ignoring the fallback limitation: if the fraud grounds fail, Section 75(2) can move the matter to the Section 73 framework.
- Relying on a rounded “three years” or “five years” statement: the notice lead-time requirement and exclusions can determine whether a particular notice is timely.
- Treating payment as automatic closure: each reduced-payment route has a specified trigger, deadline, amount and procedural condition.
- Checking only the online summary: preserve the full notice, statement, annexures, service proof, replies, orders and payment records.
When professional review is especially important
Obtain advice from a qualified GST practitioner or tax lawyer when the notice alleges fraud or suppression, covers multiple years, involves an erroneous refund, relies on a disputed annual-return due date, follows a court or tribunal stay, or was issued close to a limitation cutoff. The reviewer should be given the notice and annexures, returns and annual returns, electronic-liability ledger, invoices and books, refund records, prior correspondence, payment evidence, stay or appeal orders, and a chronology of service and replies.
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Random freezes, missing sound and display glitches usually trace back to one bad driver. Find and replace yours safely.Free scan · under a minuteFor a personal limitation check, write down the starting event and its date, the statutory order period, the required notice lead time, every exclusion, and the date on which the notice was issued and served. That audit trail makes it possible to explain a limitation objection clearly and to test the Section 73 fallback if a Section 74 allegation is not sustained.
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