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Section 73 applies when tax is short-paid or unpaid, a refund is erroneous, or input tax credit (ITC) is wrongly availed or utilised for reasons other than fraud, wilful misstatement or suppression of facts to evade tax. Section 74 applies when the department alleges that one of those fraud-related grounds caused the shortfall, refund or ITC issue. The distinction affects the limitation period, notice timing and penalty-payment options. An allegation in a show-cause notice is not, by itself, proof that fraud or suppression is established. The exact financial year, refund date, statutory version and procedural history must be checked before relying on any deadline.
CBIC’s GST FAQ on demands and recovery states the same basic division: section 73 covers cases without fraud, suppression or misstatement, while section 74 covers cases in which those grounds are invoked.
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Section 73 and Section 74 at a glance
The following comparison reflects the CGST Act text consulted by CBIC. It is a general explanation, not a finding on any individual notice.
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|---|---|---|
| Statutory trigger | Tax short-paid or not paid, erroneous refund, or wrongly availed or utilised ITC for reasons other than fraud, wilful misstatement or suppression of facts to evade tax. | The same categories of demand where the department says the result was caused by fraud, wilful misstatement or suppression of facts to evade tax. |
| Order deadline in the consulted text | Three years from the due date for the annual return for the relevant financial year, or three years from the date of an erroneous refund. | Five years from the due date for the annual return for the relevant financial year, or five years from the date of an erroneous refund. |
| Minimum notice lead time | Notice at least three months before the section 73(10) order deadline. | Notice at least six months before the section 74(10) order deadline. |
| Payment after notice | Tax and interest paid within 30 days of notice: no penalty is payable and proceedings for that notice are deemed concluded. | Tax, interest and a penalty equal to 25% of the tax paid within 30 days of notice: proceedings are deemed concluded. |
| Other payment routes in the consulted text | Tax and interest may be paid before notice; the cited provisions do not specify a separate pre-notice penalty. | Tax, interest and a 15% penalty before notice; or tax, interest and a 50% penalty within 30 days after communication of the order. |
| If the fraud-related ground fails | Section 75(2) requires determination as if the notice had been issued under section 73; the section 73 limitation then matters. | The section 74 basis may fail, and the matter is treated under section 73 for determination. |
The statutory wording and payment conditions should be read in the version applicable to the tax period. See the CBIC-hosted CGST Act for the provisions themselves.
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What makes a case section 73 or section 74?
Section 73: a demand without the specified fraud grounds
Section 73 is the ordinary demand route when the department seeks recovery of tax that was not paid or was paid short, an amount refunded in error, or ITC wrongly availed or utilised, but does not rely on fraud, wilful misstatement or suppression of facts to evade tax. A calculation error, classification dispute, documentation failure or other disagreement does not automatically become a section 74 case merely because the resulting tax amount is significant.
The department still has to identify the legal and factual basis for the demand. A section 73 notice can therefore involve a substantial amount, repeated mistakes or a contested interpretation without alleging that the taxpayer deliberately concealed facts or made a wilful misstatement to evade tax.
Section 74: the department invokes fraud, wilful misstatement or suppression
Section 74 is used when the demand is said to arise by reason of fraud, wilful misstatement or suppression of facts to evade tax. The words describe the alleged cause of the tax shortfall, erroneous refund or wrong ITC, not merely the existence of an unpaid amount.
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The same underlying problem can be classified differently
An incorrect ITC claim, for example, may be pursued under section 73 if the department treats it as an error without an evasion-related mental element. If the department alleges that the claim was knowingly fabricated, supported by wilful misstatement or concealed to evade tax, it may invoke section 74. The accounting entry alone does not answer the classification question; the notice’s factual allegations and the record do.
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How the limitation periods work
Section 73 timing
In the Act text consulted, section 73(10) allows the order to be issued within three years from the due date for furnishing the annual return for the relevant financial year. For an erroneous refund, the three-year period runs from the date of that refund. Section 73(2) requires the notice to be issued at least three months before the applicable order deadline.
Section 74 timing
Section 74(10) in the consulted text provides five years from the due date for the annual return for the relevant financial year, or five years from the date of an erroneous refund. Section 74(2) requires the notice to be issued at least six months before the section 74(10) order deadline.
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Start with the event that controls the period, then apply the statute and any applicable exclusions or extensions:
- Identify the relevant financial year if the demand concerns tax or ITC, and confirm the statutory due date for that year’s annual return.
- If the issue is an erroneous refund, identify the actual refund date instead of using an annual-return date.
- Apply the section invoked and count back the minimum notice lead time: three months for section 73 or six months for section 74 in the consulted text.
- Check for stays, statutory exclusions, amendments, special notifications or other rules that affect computation for the period.
- Compare the notice date and the proposed order date with the resulting window, preserving documents that establish each date.
These figures are not universal answers for every tax period. The current Act, commencement notifications and any period-specific measures must be checked before asserting that a notice is time-barred.
Payment, interest and penalty consequences
Section 73 payment routes
Section 73(5)–(7) permits payment of tax and interest before service of notice, with intimation to the officer. If the payment is less than the amount ultimately considered payable, proceedings may continue for the balance. Under section 73(8), payment of the tax and interest specified in the notice within 30 days of its issue results in no penalty being payable and the proceedings in respect of that notice being deemed concluded.
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The 30-day rule is tied to the statutory conditions and the amount stated in the notice. It is not a general waiver of unrelated liabilities, later periods or amounts outside that notice.
Section 74 payment routes
The consulted section 74 text creates staged reduced-penalty routes:
| When payment is made | Amounts stated in the provision | Practical effect in the consulted text |
|---|---|---|
| Before the notice | Tax, applicable interest and a penalty equal to 15% of the tax | Payment under the statutory conditions avoids issuance of a notice for the amount so paid. |
| Within 30 days after notice | Tax, applicable interest and a penalty equal to 25% of the tax | Proceedings for the notice are deemed concluded when the statutory requirements are met. |
| Within 30 days after communication of the order | Tax, applicable interest and a penalty equal to 50% of the tax | The provision supplies a reduced-penalty closure route after the order, subject to its conditions. |
Payment percentages do not decide whether section 74 was properly invoked. They are statutory settlement-style consequences after the relevant conditions are met. A taxpayer should not pay or concede liability solely because a general article lists a reduced percentage; the disputed facts, amount, period, evidence and procedural stage require professional review.
Why the section matters financially
The longer section 74 period can expose an older transaction to a demand that would be outside the section 73 window. The penalty routes also differ materially: section 73’s cited post-notice route has no penalty when tax and interest are paid within 30 days, whereas section 74’s corresponding route requires a 25% penalty. That difference makes the factual basis for the fraud-related allegation important from the first notice.
What happens if the section 74 allegation is not proved?
Section 75(2) addresses a situation in which an appellate authority, tribunal or court finds that the allegation of fraud, wilful misstatement or suppression was not established. The tax is then to be determined as if the notice had been issued under section 73.
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That conversion is not simply a change of label. The section 73 limitation can become decisive. CBIC Circular 185/17/2022-GST, dated 28 December 2022, explains that for the relevant annual-return cases the section 73 notice window is effectively two years and nine months before the section 73 order deadline, because the notice must precede the order by three months. If proceedings fall outside that period, they cannot automatically be rescued merely by converting a failed section 74 case into section 73 treatment. The circular separately discusses erroneous refunds by reference to the refund date.
Accordingly, a section 74 notice does not automatically receive the benefit of the five-year period if its fraud-related foundation ultimately fails. Limitation should be calculated at the outset, not postponed until the end of litigation.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to read a show-cause notice
Use this sequence when the notice invokes section 73 or section 74:
- Identify the statutory provision. Note whether the notice cites section 73, section 74, or both, and record the tax period and demand category.
- Separate the allegation from the amount. List the tax, interest, penalty and any ITC reversal separately. A large amount does not prove the section 74 trigger.
- Find the alleged conduct. For a section 74 notice, mark every paragraph said to establish fraud, wilful misstatement or suppression to evade tax. Check whether the notice explains the connection to evasion.
- Reconstruct the limitation calculation. Use the annual-return due date or erroneous-refund date, then apply the relevant section’s order deadline and notice lead time.
- Check the evidence. Match invoices, returns, ledgers, e-way bills, payment records, contracts, correspondence and reconciliation statements to each factual allegation.
- Review procedural authority. Confirm the issuing and adjudicating officer, delegation, hearing dates and response deadline. Authority and procedure can be distinct from the substantive section trigger.
- Preserve objections. A response may need separate objections on classification, limitation, computation, interest, penalty, jurisdiction and documents rather than one general denial.
Because limitation and payment decisions can affect rights, a recipient of an actual notice should have an Indian GST professional examine the complete file before making a payment or filing a response.
Illustrative applications
Example 1: reconciliation error without an evasion allegation
A registered person’s return reconciliation omits eligible supporting records, and the department proposes reversal of ITC. If the notice treats the issue as a documentation or calculation error and does not allege that facts were deliberately misstated or suppressed to evade tax, the section 73 framework is the relevant comparison. The taxpayer would still need to prove eligibility and answer the computation.
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Example 2: alleged fabricated transactions
A notice alleges that invoices were knowingly fabricated, that records were wilfully misstated and that the arrangement was concealed to evade tax. Those are the kinds of allegations that can lead the department to invoke section 74. The taxpayer must test whether the evidence actually supports each element; the notice’s wording alone is not a final finding.
Example 3: a section 74 case that fails on the fraud ground
Suppose an authority concludes that tax is payable but the evidence does not establish fraud, wilful misstatement or suppression. Section 75(2) directs determination as if section 73 applied. The decision-maker must then confront the shorter section 73 limitation rather than retain the section 74 five-year period automatically.
Recent procedural note for certain DGGI notices
CBIC Circular 239/33/2024-GST, dated 4 December 2024, records that Notification No. 27/2024-Central Tax, dated 25 November 2024, took effect on 1 December 2024. It expanded the specified Additional or Joint Commissioners empowered with All India jurisdiction to adjudicate certain show-cause notices issued by Directorate General of Goods and Services Tax Intelligence (DGGI) officers.
This is a question of who may adjudicate certain notices. It does not change the substantive distinction between the section 73 and section 74 triggers. A recipient should therefore analyse officer authority separately from the fraud allegation and the limitation calculation.
Current-law and section 74A caution
The two-section comparison above follows the CBIC Act text and guidance identified for this article. It should not be assumed to govern every current or future tax period without checking amendments. In particular, the commencement and transitional operation of section 74A were not established by the official materials used here. Before deciding which provision governs a period beginning with or after financial year 2024–25, verify the amended CGST Act and the relevant commencement notifications.
Also check whether a later amendment, special limitation notification, court order, stay or exclusion affects the period. A correct answer for one financial year can be wrong for another.
Documents to assemble before responding
- The complete show-cause notice, relied-upon documents and annexures.
- Returns, annual returns and reconciliation workings for every period in dispute.
- Tax invoices, credit notes, contracts, purchase orders, delivery records and proof of payment.
- ITC registers, vendor communications and evidence of receipt or use of supplies.
- Refund applications, sanction orders and bank-credit records where an erroneous refund is alleged.
- Internal approvals, accounting entries and correspondence relevant to any alleged misstatement or suppression.
- A date schedule showing annual-return due dates, refund dates, notice dates, hearing dates and order deadlines.
Organising these records helps distinguish a genuine section 73 dispute from a section 74 allegation and gives an adviser the facts needed to test limitation and penalty exposure.
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Section 73 is the non-fraud route for specified GST shortfalls, erroneous refunds and wrong ITC; section 74 is reserved for demands said to result from fraud, wilful misstatement or suppression to evade tax. In the consulted Act text, the difference means three years versus five years for the order period, three months versus six months of notice lead time, and materially different payment and penalty consequences. If the section 74 ground is not established, section 75(2) brings the matter back to section 73 treatment, making the shorter limitation period potentially decisive. Always apply the version of the law and notifications governing the particular tax period.
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