Sections 73-74 CGST — explained: this guide covers what Sections 73-74 CGST — means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
The Two Demand Tracks in GST
GST has two separate demand provisions — the track used determines the time limit, interest rate, and penalty applicable:
Section 73 — Demand WITHOUT Fraud (Normal Cases)
When applicable: Tax not paid, short-paid, erroneously refunded, or ITC wrongly availed — where the reason is NOT fraud, willful misstatement, or suppression of facts. Essentially: honest mistakes, computational errors, interpretation disputes.
Time limit for SCN: At least 3 months before the time limit for passing order.
Time limit for order: 3 years from the due date of filing annual return for the relevant year. Example: issue for FY 2023-24 → GSTR-9 due December 31, 2024 → order must be passed by December 31, 2027.
Interest: 18% per annum from the due date of payment to the date of actual payment.
Penalty: 10% of tax or Rs. 10,000, whichever is higher. BUT — if the taxpayer pays the entire tax + interest WITHIN 30 DAYS of SCN: NO penalty. This is a huge incentive to settle quickly.
Section 74 — Demand WITH Fraud (Serious Cases)
When applicable: Tax not paid, short-paid, erroneously refunded, or ITC wrongly availed — by reason of fraud, willful misstatement, or suppression of facts to evade tax.
Time limit for SCN: At least 6 months before the time limit for passing order.
Time limit for order: 5 years from the due date of filing annual return. Example: issue for FY 2023-24 → order must be passed by December 31, 2029.
Interest: 24% per annum (higher than Section 73's 18%).
Penalty: 100% of tax (equal to the tax amount). BUT — if taxpayer pays entire tax + interest + 15% penalty WITHIN 30 DAYS of SCN: total penalty reduced to 15% (instead of 100%). After 30 days: 25% penalty if paid within 30 days of ORDER. After that: full 100%.
Section 75 — General Provisions for Demand Proceedings
Key safeguards:
(a) Natural justice: opportunity of being heard must be given before passing any adverse order.
(b) Self-assessed returns: no SCN needed for recovery of tax as per the taxpayer's own return (self-assessed but not paid).
(c) Interest automatic: interest is payable even if not specifically demanded — it accrues by operation of law.
(d) Pre-deposit for appeal: to appeal against a demand order, the taxpayer must pay the admitted amount in full and pre-deposit 10% of the disputed tax for the first appeal (Appellate Authority), capped at Rs. 20 crore CGST + Rs. 20 crore SGST, and a further 10% for an appeal to the GST Appellate Tribunal, also capped at Rs. 20 crore each (limits effective 01.11.2024; earlier 20% and Rs. 25 crore/Rs. 50 crore). Where the order demands only a penalty, the pre-deposit is 10% of the penalty.
Response Strategy to SCN
Option 1 — Pay and close: If the demand is correct, pay within 30 days of SCN to avoid/minimize penalty. Section 73: no penalty. Section 74: only 15% penalty.
Option 2 — Contest the SCN: File detailed written reply on the GST portal or in person, addressing each allegation with evidence, legal arguments, and case law. Request personal hearing. The adjudicating officer must consider your reply before passing the order.
Option 3 — Partial acceptance: Accept part of the demand (pay tax + interest on accepted portion) and contest the balance. This demonstrates good faith and may influence the officer's approach.
Recovery — Sections 79-84
If you do not pay the demand within 3 months of the order (or appeal period): the department can initiate recovery through:
(a) Deduction from any amount payable to you by the government.
(b) Recovery from your bank account (attachment of bank account — most common).
(c) Detention and sale of goods.
(d) Recovery from other persons who owe you money (garnishee proceedings).
(e) Arrest and detention of the person (for amounts exceeding Rs. 2 crore involving fraud).