Section 73 vs 74 FAQs — GST Demand, Penalty & Limitation Explained

These questions are drawn from real GST compliance scenarios, litigation, and common queries from practitioners. Answers reflect the law as amended up to Finance Act 2024.

• 1 What is the fundamental difference between Section 73 and Section 74 of the CGST Act?

  Section 73 applies to cases of non-payment, short payment, or wrongful ITC availment where there is no allegation of fraud, wilful misstatement, or suppression of facts. Section 74 applies when these elements are present — i.e., the department alleges intentional evasion. The practical consequences differ substantially: Section 73 has a 3-year limitation and 10% penalty; Section 74 has a 5-year limitation and 100% penalty.

• 2 What are the reduced-penalty settlement windows under Section 74?

  Section 74 offers three settlement windows to incentivise early resolution: (a) If the taxpayer pays the full tax + interest before the issue of the SCN, the penalty is limited to 15% of the tax (Section 74(5)); (b) If paid within 30 days of the SCN, penalty is 25% (Section 74(6)); (c) If paid within 30 days of the final order, penalty is 50% (Section 74(7)). Beyond these windows, the full 100% penalty applies.

• 3 Can the department issue a Section 74 demand simply to get a longer limitation period?

  No — courts have consistently held that Section 74 cannot be invoked merely to avail the extended 5-year limitation. The department must specifically allege fraud, wilful misstatement, or suppression in the SCN, and must have material to support that allegation. Section 75(3) requires the proper officer to record reasons when proceeding under Section 74 instead of Section 73. Several High Courts have quashed Section 74 demands where the underlying facts revealed only a difference of opinion on classification — not fraud.

• 4 What is the limitation period for issuing a GST demand notice?

  Under Section 73(10), the adjudication order must be issued within 3 years from the due date for filing the annual return for the relevant financial year (or from the date of erroneous refund, as applicable). Under Section 74(10), this period is extended to 5 years where fraud is alleged. Both are outer limits for the adjudication order — the SCN must be issued even earlier (at least 3 months before the Section 73 limit; 6 months before the Section 74 limit).

• 5 How does Finance Act 2024 change the Section 73 / 74 framework?

  Finance Act 2024 restructures the demand and penalty framework for F.Y. 2024-25 onwards. A merged Section 73 becomes the single demand provision for all non-fraud and fraud demands alike, and a new Section 74A introduces a dedicated penalty track specifically for fraud/suppression cases. Key changes under the new regime: (a) SCN for non-fraud cases must be issued within 2 years from the due date of GSTR-9 (reduced from 3 years); (b) SCN for fraud cases must be issued within 5 years (same as before). For financial years up to 2023-24, the original Sections 73 and 74 with their respective limitations and penalties continue to apply unchanged.

• 6 What is Section 74A and when does it apply under GST?

  Section 74A was inserted by Finance Act 2024 and applies to demands relating to F.Y. 2024-25 onwards. It is a penalty-specific provision that runs alongside the restructured Section 73. Under Section 74A: (a) where the demand involves fraud, wilful misstatement, or suppression, a penalty of 100% of tax is imposed; (b) where no such element is present, the penalty is 10% of tax — mirroring the old Section 73 rate. Section 74A does not replace Section 74 for past years — for FY 2023-24 and earlier, Section 74 (with its 5-year limit and 100% penalty) continues to apply in full.

• 7 What is the penalty if a Section 73 demand is confirmed after adjudication?

  If the taxpayer does not avail any of the early-settlement windows and the adjudication order confirms the demand, the penalty under Section 73 is 10% of the tax due (minimum ₹10,000). The taxpayer also owes interest under Section 50 at 18% per annum. If the taxpayer pays within 30 days of the order (Section 73(8)), the applicable penalty remains 10% — the same rate — so there is no incremental benefit to delaying payment after the order stage under Section 73.

• 8 Can a taxpayer get a personal hearing before a GST demand order is passed?

  Yes. Section 75(4) of the CGST Act gives an opportunity of being heard to the taxpayer before the adjudicating officer passes an order. The taxpayer can submit a written reply to the SCN and also request a personal hearing. Courts have repeatedly held that passing an order without providing a meaningful opportunity of hearing is a violation of natural justice and renders the order liable to be set aside. The hearing is a mandatory procedural safeguard, not a formality.