By S&S Co. Advocates & Solicitors · Published 23 September 2026 · Informational content, not legal advice: see our disclaimer
Two Different Roads to the Same Demand
Both Section 73 and Section 74 of the CGST Act empower the department to raise a demand for tax not paid, short paid, or input tax credit wrongly availed or utilised. The provisions otherwise run in parallel, but they diverge sharply on two points that matter enormously to a taxpayer: the limitation period within which the demand can be raised, and the penalty that follows.
Limitation Periods Differ Substantially
A Section 73 notice, applicable where there is no allegation of fraud, wilful misstatement or suppression, must generally be issued within a shorter limitation window measured from the due date of the annual return for the relevant financial year. Section 74, applicable where fraud, wilful misstatement or suppression of facts is alleged to evade tax, carries a materially longer limitation period, allowing the department to reach back further in time.
Penalty Exposure Is the Sharper Distinction
Under Section 73, where tax, interest and penalty are paid within specified windows before or shortly after the notice, penalty can be nil or capped at a modest percentage of the tax involved. Under Section 74, the standard penalty is 100% of the tax amount, though reduced concessional penalties are available if payment is made at specified early stages. The gap between these outcomes is why the department's choice of section. And whether that choice is properly justified. Is worth scrutinising closely in every case.
What the Department Must Show to Invoke Section 74
Because Section 74's extended limitation and higher penalty represent a significant departure from the ordinary regime, courts have consistently required that a notice invoking it disclose specific facts supporting an inference of fraud, wilful misstatement or suppression, not merely recite those words. A bona fide, disclosed interpretational position on a classification or valuation issue, even if ultimately found incorrect, does not by itself amount to suppression, and notices that rely on such recitals without underlying facts have been set aside or reclassified to Section 73 on appeal.
What to Do If You Receive a Section 74 Notice
A taxpayer receiving a Section 74 notice should first examine whether the specific facts alleged genuinely support fraud or suppression, or whether the underlying dispute is really an interpretational or valuation disagreement that should properly fall under Section 73. Raising this distinction at the earliest stage: in the reply to the notice itself: preserves the argument for the adjudicating authority, the appellate authority, and if necessary the GST Appellate Tribunal or courts.
Frequently Asked Questions
What is the main practical difference between Section 73 and Section 74?
Section 73 applies to non-fraud short payment or wrong credit with a shorter limitation period and lower penalty exposure; Section 74 applies where fraud, wilful misstatement or suppression is alleged, with a longer limitation period and a penalty of up to 100% of the tax.
Can a Section 74 notice be reclassified to Section 73?
Yes. Appellate authorities and tribunals have reclassified demands raised under Section 74 to Section 73 where the underlying facts show only a bona fide interpretational dispute rather than fraud or suppression, reducing both the penalty and the effective limitation exposure.
Does paying the demand early reduce the penalty under Section 74?
Yes. Section 74 provides for concessional, reduced penalty percentages where tax, interest and penalty are paid at specified early stages (before notice, within 30 days of notice, or before the order), though the concession is smaller than what Section 73 offers for equivalent early payment.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- Central Goods and Services Tax Act, 2017: Sections 73 and 74.