Key points
- Section 73 applies where there is no fraud or wilful misstatement and carries a 10% penalty; Section 74 alleges fraud and carries 100%, reducible if paid early.
- For periods from FY 2024-25, a unified Section 74A applies with a common limitation and graded penalties.
- The officer must give a personal hearing on request and pass a reasoned order; the appeal under Section 107 needs a 10% pre-deposit of the disputed tax.
Reading the notice
The notice in DRC-01 states the period, the alleged short payment or wrong input tax credit, the tax, interest and penalty proposed, and the section invoked. Check whether an intimation in DRC-01A preceded it, whether the notice is within the time limit for the section, and whether the officer has jurisdiction. Notices under Section 74 must contain specific allegations of fraud, not merely repeat the statutory words.
The reply
File the reply in DRC-06 within the time given (usually 30 days). Answer each allegation with reconciliations, invoices, e-way bills and supplier compliance evidence. Where the demand arises from a supplier's default, cite the circulars and judgments on the buyer's entitlement to credit. Request a personal hearing; the CGST Act requires one where an adverse order is proposed, and orders passed without it are regularly set aside.
Paying to close
Under Section 73, paying tax and interest before the notice, or within 30 days of it, closes the matter with no penalty. Under Section 74, paying within 30 days of the notice reduces the penalty to 25%, and within 30 days of the order to 50%.
Appeal
An appeal to the appellate authority lies within three months of the order with a pre-deposit of 10% of the disputed tax (capped). Further appeal lies to the GST Appellate Tribunal, now constituted, with an additional pre-deposit. Writ petitions in the Delhi High Court are entertained where the order is without jurisdiction or in breach of natural justice.
Frequently asked questions
What is the time limit for a Section 73 notice?
Three years from the due date of the annual return for the year, with the notice required at least three months before that; for Section 74, five years. Section 74A sets a common limit of 42 months from the annual return due date for FY 2024-25 onwards.
Can input tax credit be denied because my supplier did not pay tax?
The department takes that position under Section 16(2)(c). Courts have required the department to first proceed against the supplier where the buyer has paid and holds valid invoices; the issue remains contested and should be defended with full documentation.
Related practice area: Tax Advisory & Disputes
This article is for general information and does not constitute legal advice. Laws, rules and limitation periods change and depend on the facts; please take advice on your own situation before acting. Reading this article does not create a lawyer-client relationship with Akhtars Legalitarian.