GST Demand Notice —
Section 73, 74 & 74A
What a DRC-01 demand notice means, the reply window, penalties under Section 73, 74 and the new unified Section 74A, and how to close a demand via DRC-03 or appeal.
A GST demand notice is issued when a tax officer finds tax short-paid, not paid, wrongly refunded or excess ITC availed. The formal Show Cause Notice is served in Form DRC-01 and you get 30 days to reply (in DRC-06). Section 73 covers non-fraud cases, Section 74 covers fraud/suppression (up to 100% penalty), and the new Section 74A unifies both for periods from FY 2024-25 with a single 42-month time limit. Paying via DRC-03 before the SCN closes the case.
Section 73 vs 74 vs 74A — Key Differences
Which section applies depends on whether fraud is alleged and, from FY 2024-25, whether the new unified regime governs the period.
| Feature | Section 73 (non-fraud) | Section 74 (fraud) | Section 74A (unified) |
|---|---|---|---|
| Nature of case | Honest error, no intent to evade | Fraud, suppression, wilful misstatement | Both (single regime) |
| Applies to periods | Up to FY 2023-24 | Up to FY 2023-24 | FY 2024-25 onwards |
| Time limit to issue SCN | 3 years from annual-return due date | 5 years from annual-return due date | 42 months from annual-return due date |
| Time limit to pass order | 3 years | 5 years | 12 months from SCN (+6 mth) |
| Reduced-penalty reply window | 30 days | 30 days | 60 days |
| Max penalty | 10% of tax | 100% of tax | Non-fraud 10% / fraud 100% |
Section 74A was inserted by the Finance (No.2) Act 2024 to remove the fraud/non-fraud distinction on time limits for FY 2024-25 onwards. Older periods still run on Section 73 or 74.
Where the officer alleges suppression of turnover, wilful misstatement or fraudulent ITC, the penalty can equal the full tax demand — and prosecution is possible under Section 132 for large amounts. Respond promptly and get the notice professionally reviewed before replying.
Penalty Ladder — Pay Early, Pay Less
The penalty falls sharply the earlier you settle. Voluntary payment before the SCN, using DRC-03, attracts the lowest penalty; waiting for the final order attracts the highest.
| Stage of payment | Section 73 (non-fraud) | Section 74 (fraud) |
|---|---|---|
| Before SCN (via DRC-03) | Nil penalty | 15% of tax |
| Within 30 days of SCN | Nil penalty | 25% of tax |
| Within 30 days of order | — | 50% of tax |
| On adjudication order | 10% or ₹10,000 (higher) | 100% of tax |
Under Section 74A the reduced-penalty payment window is 60 days (not 30); non-fraud 74A cases carry a 10% floor, fraud cases up to 100%. Interest under Section 50 (18% p.a.) is always payable on the short-paid tax regardless of penalty.
If you pay the full tax plus interest and the reduced penalty within the reply window, adjudication stops there. For a genuine dispute, a well-drafted DRC-06 reply with reconciliations can get the demand dropped or scaled down — often cheaper than paying and moving on.
Common Triggers for GST Demand Notices
Most demands in 2025-26 are system-driven — from GSTR reconciliation, e-way-bill analytics and cross-matching with income-tax data.
- Excess ITC vs GSTR-2B — credit claimed in GSTR-3B that does not appear in your auto-drafted GSTR-2B because the supplier did not file GSTR-1.
- Turnover under-reporting — GSTR-1/3B turnover lower than income-tax return, Form 26AS, AIS/TIS or bank data.
- Wrong rate or HSN — a lower GST rate than prescribed; common in construction, textiles and food.
- Blocked-credit availment — ITC taken on items barred by Section 17(5).
- Non-filing / short payment — GSTR-3B tax paid less than GSTR-1 liability; see late fee & interest.
Flagged for an ITC or turnover mismatch? Get your position reconciled before you reply.
Talk to a GST Expert →GST Demand Forms — DRC-01, DRC-03, DRC-07
| Form | Purpose | Issued / filed by | Stage |
|---|---|---|---|
| DRC-01A | Intimation of liability before SCN | GST officer | Pre-SCN |
| DRC-01 | Show Cause Notice / demand notice | GST officer | SCN |
| DRC-03 | Voluntary payment of tax + interest + penalty | Taxpayer (portal) | Pre- or post-SCN |
| DRC-04 | Acknowledgement closing proceedings after DRC-03 | GST officer | After DRC-03 |
| DRC-06 | Taxpayer's reply to the Show Cause Notice | Taxpayer | Reply to SCN |
| DRC-07 | Summary of the final demand order | GST officer | After adjudication |
Sequence: DRC-01A → (agree: DRC-03/DRC-04) or (dispute: DRC-01 → DRC-06 → hearing → DRC-07).
How to Reply to a DRC-01 Demand Notice
- Note the exact section (73 / 74 / 74A) and the tax period
- Diarise the 30-day (or 60-day under 74A) reply deadline
- Reconcile GSTR-1, GSTR-3B and GSTR-2B for the period
- Gather invoices, ledgers and supplier GSTR-1 proof
- If you agree — pay tax + interest + penalty via DRC-03
- If you dispute — file a documented reply in DRC-06
- Request and attend the personal hearing
- Preserve DRC-04 (closure) or the DRC-07 order for appeal
Received a DRC-01? We draft the DRC-06 reply and represent you at the hearing.
Get DRC-01 Reply Help →Appealing a GST Demand Order
A demand order (DRC-07) can be appealed to the Commissioner (Appeals) in Form APL-01 within 3 months of the order, after a mandatory pre-deposit of 10% of the disputed tax. Further appeal lies to the GST Appellate Tribunal (GSTAT), then the High Court and Supreme Court.
- Form: APL-01, filed online on the GST portal.
- Time limit: 3 months from the order (condonable up to 1 more month).
- Pre-deposit: 10% of the disputed tax to admit the first appeal.
- Next tier: GSTAT — an additional pre-deposit applies for the second appeal.
Pay & close it if
- The demand is small and clearly correct
- You want to stop interest and penalty accruing
- No principle or recurring exposure at stake
Reply / appeal if
- The demand rests on a supplier's default, not yours
- The rate / HSN classification is genuinely arguable
- Fraud is alleged but there was no intent to evade
- The amount or the precedent is material to you
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