Section 73 vs Section 74 GST Notices: Why the Difference Matters

Section 73 and Section 74 of the CGST Act both allow the department to demand unpaid or short-paid tax, wrongly claimed refunds, or wrongly availed input tax credit — the procedural steps are similar, but the ground alleged is fundamentally different. Section 73 applies where the shortfall is not the result of fraud, wilful misstatement, or suppression of facts. Section 74 applies specifically where the department alleges one of those three things.

The stakes attached to that distinction are significant. Under Section 73, if the tax and interest are paid before the show-cause notice is issued, there is no penalty at all; paid after the notice but before the order, the penalty is capped at 10% of the tax or ₹10,000, whichever is higher. Under Section 74, the equivalent penalty is 15% if paid before notice, 25% if paid after notice but before order, and can rise to 50% or even 100% of the tax amount if contested and lost — an order of magnitude harsher for what may be the same factual dispute.

Because of this gap, it is not uncommon for departments to issue notices under Section 74 even where the facts more naturally fit Section 73 — a genuine interpretational error, a late realisation of a filing mistake, or a documented but disputed position — since alleging fraud shifts a significant burden onto the taxpayer and raises the stakes of settling early. Challenging the section under which a notice is issued, where the facts don't support an allegation of fraud, is often as important as contesting the underlying tax demand itself.

If you've received a GST notice under Section 74, it is worth having the actual factual allegations reviewed against whether they genuinely support a fraud finding, rather than accepting the section as given. Our GST & Tax practice reviews the basis for Section 74 notices and contests misclassification where the facts warrant it.