Section 73 or Section 74?The label on your GST notice decides the penalty — and where you can contest it

Two businesses in Lucknow receive a DRC-01 for the same disputed tax of ₹20 lakh. One is issued under Section 73 of the CGST Act, 2017; the other under Section 74. The tax is identical; the exposure is not. The first faces a penalty of ₹2 lakh, the second ₹20 lakh — and a demand reaching two years further back.

That single line at the head of the notice is often the least examined thing in it. Taxpayers argue the classification or the input tax credit, and never ask the prior question: was the department entitled to invoke the heavier provision at all?

The gap between the two sections

Section 73 covers tax not paid, short paid, erroneously refunded, or credit wrongly availed or utilised for any reason other than fraud, wilful-misstatement or suppression of facts to evade tax. Section 74 covers the same defaults by reason of fraud, wilful-misstatement or suppression. Everything else follows from that distinction.

• Penalty. Section 73(9): tax, interest and a penalty of ten per cent of tax or ten thousand rupees, whichever is higher. Section 74(1): the notice itself proposes a penalty equivalent to the tax.
• Limitation. Section 73(10): the order within three years from the due date for furnishing the annual return for the relevant year, or from the date of erroneous refund. Section 74(10) allows five years.
• Notice lead time. Section 73(2) requires the notice at least three months before that outer limit; Section 74(2) requires six months.
• The exit routes. Under Section 73(8), paying the tax with interest under Section 50 within thirty days of the notice means no penalty, and the proceedings are deemed concluded. Under Section 74 the corresponding doors cost money: fifteen per cent of the tax before the notice (Section 74(5)), twenty-five per cent within thirty days of the notice (Section 74(8)), fifty per cent within thirty days of communication of the order (Section 74(11)).

A Section 73 notice, in other words, offers a commercial off-ramp for an honest error. A Section 74 notice offers none that is cheap — which is why the classification is worth contesting on its own, apart from the merits of the demand.

What the department must actually allege

"Suppression" is not left to impression. Explanation 2 to Section 74 defines it, for the purposes of the Act, as non-declaration of facts or information which a taxable person is required to declare in the return, statement, report or any other document furnished under the Act or the rules, or failure to furnish any information on being asked for, in writing, by the proper officer.

That definition has two practical edges. Information the law never required you to declare cannot be "suppressed" by not declaring it. And a failure to supply information is relevant only where the officer asked for it in writing.

The courts have built on this. In M/s Raghuvansh Agro Farms Ltd. v. State of U.P. & Others (Writ Tax No. 3829 of 2025, decided on 17 December 2025), the Allahabad High Court quashed proceedings under Section 74 of the UPGST Act where neither the notice nor the order contained a specific allegation, or a categorical finding, of fraud, wilful misstatement or suppression to evade tax. The assessee had produced tax invoices, e-way bills, transporter records, banking-channel payments and GST returns; the adverse inference rested largely on non-production of toll plaza receipts, which no provision requires a taxpayer to maintain. The ingredients of Section 74, the Court held, must be expressly alleged and supported by material — they cannot be supplied later by argument.

The heavier provision is not a stronger version of the lighter one. It is a different provision, with its own entry conditions that the notice itself must satisfy.

But the place to raise it is the reply

This is where a recent decision cuts against the instinct to rush to the High Court the moment a Section 74 notice lands.

On 29 July 2026, in Gias Uddin Ahmed & Anr. v. Union of India & Ors., the Gauhati High Court declined to interfere with a show cause notice on this very ground. Whether a case falls within Section 73 or Section 74, the Court held, necessarily involves the adjudication of disputed facts: fraud, wilful misstatement or suppression with intent to evade tax requires examination of evidence, which belongs to the proper officer in adjudication and cannot be conclusively decided in writ jurisdiction. The petitioners were relegated to the statutory remedy and granted thirty days to reply, with the period of the writ petition excluded from the limitation for completing the adjudication.

Read together, the two decisions point the same way. The classification is a substantive ground, but one that has to be built on the record. A taxpayer who never put the notice's silence on fraud or suppression into the reply has little to work with later.

For FY 2024-25 onwards, the map has changed

This is the part most often missed when older advice is applied to a current notice. Section 74A, inserted by section 138 of the Finance (No. 2) Act, 2024 (Act No. 15 of 2024, dated 16 August 2024), now governs demands on its own terms. Section 74A(12) says so expressly: it applies to determination of tax pertaining to the Financial Year 2024-25 onwards. Sections 73 and 74 continue to govern earlier years.

• One limitation for everyone. Section 74A(2) requires the notice within forty-two months from the due date for furnishing the annual return for the relevant year, or from the date of erroneous refund — whether or not fraud is alleged. Section 74A(7) requires the order within twelve months of the notice, extendable by a maximum of six months by the Commissioner or an authorised officer not below the rank of Joint Commissioner, for reasons recorded in writing before the period expires.
• The distinction survives in the penalty. Section 74A(5)(i) prescribes ten per cent of tax or ten thousand rupees, whichever is higher, for non-fraud cases; Section 74A(5)(ii) prescribes a penalty equivalent to the tax where fraud, wilful misstatement or suppression to evade tax is the reason. The gap in dispute is now a penalty gap, not a limitation gap.
• The clock to settle is longer. Under Section 74A(8)(ii), paying tax with interest within sixty days of the notice in a non-fraud case attracts no penalty. In fraud cases Section 74A(9) offers fifteen per cent before the notice, twenty-five per cent within sixty days of the notice, and fifty per cent within sixty days of communication of the order. Sixty days, not thirty — a date worth calendaring correctly.
• A small-value floor. The proviso to Section 74A(1) bars a notice where the tax, or the credit wrongly availed or utilised, in a financial year is less than one thousand rupees.
• The safety net, restated. Section 75(2A) provides that if the higher penalty under Section 74A(5)(ii) is held unsustainable because the fraud charge is not established, the penalty is payable under Section 74A(5)(i) instead.

What to do when a Section 74 or 74A notice arrives

None of this makes a Section 74 notice automatically bad; genuine evasion exists, and the provision exists for it. The point is narrower: the higher provision carries entry conditions, those conditions must appear in the notice, and the opportunity to say so has a date on it.