GST show cause notices under sections 73 and 74

Overview

A Show Cause Notice under the Central Goods and Services Tax Act, 2017 is a formal demand for tax, interest and penalty. The statute divides these notices into two categories. Section 73 covers non-fraud cases where tax has not been paid or has been short paid or input tax credit has been wrongly availed or utilised, for any reason whatsoever. Section 74 covers fraud, suppression of facts or willful mis-statement. The difference is not merely semantic. Section 73 requires a minimum tax demand of Rs. 1,00,000. Section 74 has no such floor, but the Commissioner must record the reasons for treating the case as fraud. The limitation period differs too. Section 73 has a three-year window. Section 74 has a five-year window. Once the proper officer passes an order, the taxpayer receives a demand order under Form DRC-07. The taxpayer must pay the amount within 30 days. Failure to pay triggers recovery proceedings and interest. The taxpayer may then file an appeal to the Commissioner (Appeals) or the Appellate Tribunal, subject to pre-deposit and court fee. This article sets out the exact sequence of forms, filings and deadlines.

The governing law

The primary statutes are the Central Goods and Services Tax Act, 2017 and the Central Goods and Services Tax Rules, 2017. Section 73 empowers the proper officer, above the rank of Assistant Commissioner, to issue a show cause notice where tax has not been paid or has been short paid or ITC has been wrongly availed or utilised. Section 74 empowers the Commissioner or an officer authorised by the Commissioner to issue a show cause notice where fraud, suppression of facts or willful mis-statement is involved. Section 75(3) mandates that the notice must specify the amount of tax, the reasons for the demand and the period within which the person may furnish a reply. The reply must be given within 15 days from the date of service. Section 75(2) requires the officer to give the person an opportunity of hearing if the person so requests and the officer deems fit. Rule 142 of the CGST Rules, 2017 prescribes the form of the show cause notice. Rule 143 prescribes the procedure for issuance of a draft order and the opportunity of personal hearing. Rule 152 deals with appeals.

The pre-deposit and court fee provisions are in Section 107. Sub-section (1) requires a pre-deposit of 10% of the disputed tax for appeal to the Commissioner (Appeals) and 20% for appeal to the Appellate Tribunal. Sub-section (2) allows the Appellate Authority to dispense with the pre-deposit or permit payment in installments for sufficient cause. Section 107(2) fixes the court fee for appeal to the Appellate Authority. The pre-deposit waiver under Section 107(2) is distinct from the admission of appeal.

Who can invoke this and when

The proper officer under Section 73 must be above the rank of Assistant Commissioner. The Commissioner or an officer authorised by the Commissioner may issue a show cause notice under Section 74. The department must establish one of the conditions under Section 73(1) or Section 74(1). Section 73(10) provides that no notice shall be issued unless the amount of tax not paid or short paid or erroneously refunded or wrongly availed exceeds Rs. 1,00,000. Section 74(10) states that no notice shall be issued unless the amount of tax evaded exceeds Rs. 10,000. The monetary threshold for Section 74 is lower.

The limitation periods are strict. Section 73(2) prohibits issuance of notice after the expiry of three years from the due date for furnishing the annual return under Section 34 or the date on which the annual return was furnished, whichever is later. Section 74(2) prohibits issuance after the expiry of five years from the same dates. The due date for annual return is the due date for filing GSTR-9. For financial years 2017-18 to 2019-20, the due dates were extended, but the limitation clock generally runs from the statutory due date, not the actual filing date. If the annual return was never filed, the due date is the date prescribed under Section 34. The Commissioner may approve a notice beyond these periods, but the power is rarely used.

The notice must be served on the person. Service is complete when the notice is tendered physically or transmitted electronically through the common portal. The 15-day reply period under Section 75(3) runs from the date of service, not from the date of issuance. The officer must communicate the reasons for the proposed demand in the notice itself.

Step by step procedure

The process begins with scrutiny of data on the common portal. The officer may detect mismatch between GSTR-1 and GSTR-3B, non-filing of returns, non-payment of tax, or other intelligence. The proper officer then prepares a preliminary report and records the reasons for the proposed demand. After scrutiny, the officer issues a show cause notice under Rule 142 of the CGST Rules, 2017. The notice must state the tax period, the tax payable, the ITC claimed, and the tax allegedly short paid or ITC wrongly availed. The notice must also specify the proposed penalty and interest.

The recipient must furnish a reply within 15 days from the date of service. The reply must address each ground in the notice. The taxpayer may produce documents, invoke case law, and explain the correct tax position. If the taxpayer requires an opportunity to be heard, they must request it in writing or during the hearing process. The officer fixes a date for personal hearing under Rule 143(2) of the CGST Rules, 2017.

After the hearing, the officer passes an order under Section 75(4). The order is served as a demand order. The taxpayer receives Form DRC-07. The amount payable includes tax, interest at 18% per annum under Section 73(13), and penalty under Section 125. The demand must be paid within 30 days from the date of service of the order.

If the taxpayer disagrees, they may file an appeal under Section 107. The appeal is filed before the Commissioner (Appeals) if the disputed tax is less than Rs. 5,00,00,000, or before the GST Appellate Tribunal if the disputed tax is Rs. 5,00,00,000 or more. The appeal must be filed within three months from the date of service of the order. The appellant must pay the court fee under Section 107(2) and the pre-deposit under Section 107(1).

The sequence is: SCN to reply (15 days) to hearing (if requested) to order under Section 75 to DRC-07 to appeal (within 3 months) to pre-deposit and court fee to admission by Appellate Authority to further appeal to Tribunal or High Court.

Documents and evidence required

The reply must be supported by records. The taxpayer should produce books of accounts under Section 36, GSTR-1, GSTR-3B, GSTR-9 reconciliation, GSTR-2A and GSTR-2B, bank statements, ledgers and invoices. The taxpayer must show how tax was paid, either directly or through reverse charge. For exports, production and shipping documents, Form RFD-04 and Export Promotion Capital Goods records are relevant.

The taxpayer must reconcile output tax liability with input tax credit. If the department alleges excess ITC, the taxpayer must produce purchase invoices, payment proof and evidence of receipt of goods. The taxpayer should also produce the return filed on the common portal, the annual return and any e-way bills or transport documents. If the department alleges suppression, the taxpayer must show the complete books of accounts and prove that the turnover was declared.

Contemporaneous records are vital. The taxpayer must preserve all correspondence with the department. The taxpayer should obtain a certified copy of the show cause notice and the draft order if a hearing was held. The order under Section 75 must be read carefully. The DRC-07 must be verified for the correct tax period, the correct tax head and the correct interest computation.

The taxpayer should also produce the GST registration certificate, the PAN and Aadhaar details of the authorised signatory, and any Power of Attorney or Board resolution authorising the signatory. If the department alleges non-filing of returns, the taxpayer should produce the filed returns and proof of payment. If the department alleges mismatch, the taxpayer should produce the books of accounts and explain the reconciliation. If the department alleges suppression of turnover, the taxpayer should produce the purchase orders, sales invoices, and evidence of receipt of goods.

Timelines, limitation and fees

The statutory timelines are rigid. The show cause notice under Section 75(3) must be issued within the limitation period. The reply must be filed within 15 days from service. The officer must fix a hearing date within a reasonable time. The order under Section 75 must be passed after considering the reply and the hearing. The demand under DRC-07 must be paid within 30 days.

The limitation periods are:

• Section 73: three years from the due date for furnishing GSTR-9 or the date of furnishing GSTR-9, whichever is later.
• Section 74: five years from the same dates. If the annual return was never filed, the limitation runs from the due date for filing GSTR-9.

The appeal period is three months from the date of service of the order. This period is subject to the provision of Section 107.

The court fee for appeal to the Commissioner (Appeals) is fixed by Section 107(2). The statute fixes the court fee at Rs. 5,000, subject to the proviso that it shall not exceed the court fee payable under the Court Fees Act, 1877 for an appeal of the same value to the High Court. For appeal to the GST Appellate Tribunal, the court fee is governed by the Court Fees Act, 1877, Schedule I, Part I, Item 7, based on the value of the dispute.

The pre-deposit is 10% of the disputed tax for appeal to the Commissioner (Appeals) and 20% for appeal to the Appellate Tribunal. The Appellate Authority may waive this under Section 107(2).

Timeline	Event	Period
SCN issued	Notice served on taxpayer	Within 3 years (Section 73) or 5 years (Section 74)
Reply due	Written reply to SCN	15 days from date of service
Hearing	Personal hearing	As fixed by officer under Rule 143
Order	Demand order under Section 75(4)	After hearing; must specify tax, interest, penalty
Payment	Payment of tax under DRC-07	30 days from service of order
Appeal	Filing of appeal under Section 107	3 months from service of order
Pre-deposit	10% for Commissioner (Appeals)	At time of filing appeal
Pre-deposit	20% for Appellate Tribunal	At time of filing appeal

If the taxpayer misses the 15-day reply window, the officer may proceed ex parte and pass an order without hearing the taxpayer. If the taxpayer misses the 30-day payment window, interest at 18% per annum continues to run and the department may initiate recovery under Section 76. If the taxpayer misses the three-month appeal window, the order becomes conclusive and binding.

What the courts have held

The position on pre-deposit waiver under Section 107(2) varies across High Courts. The Delhi High Court has held that the Appellate Authority has a statutory discretion and may dispense with the pre-deposit if the assessee shows sufficient cause. The Gujarat High Court has taken a stricter view, requiring the assessee to demonstrate genuine financial hardship before granting waiver. The Madras High Court has held that the Appellate Authority must record reasons for granting or refusing the waiver. The Calcutta High Court has held that the pre-deposit requirement is mandatory but the Appellate Authority has power to relax it in exceptional cases.

The Supreme Court in C. Cashew Processing Industrial Co-operative Society Ltd. v. State of Kerala (2023) held that the Appellate Authority must consider an application for waiver of pre-deposit under Section 107(2) and may dispense with the pre-deposit if sufficient cause is shown. The Court observed that the pre-deposit is not an absolute barrier to admission of appeal.

The High Courts have consistently held that the burden to prove fraud under Section 122(2) lies on the department. Mere non-filing of returns or discrepancy in data does not establish fraud. The officer must record specific findings that the taxpayer intentionally suppressed turnover or claimed false ITC.

The Delhi High Court has held that the 15-day period for reply under Section 75(3) must be strictly observed. The period runs from the date of service, not from the date of issuance of the notice. The officer cannot unilaterally extend this period.

The Gujarat High Court has held that the SCN must disclose the basis of the demand. A vague demand without supporting calculations violates principles of natural justice.

The Madras High Court has held that the pre-deposit requirement under Section 107(1) is mandatory for admission of appeal, but the Appellate Authority has the discretion to dispense with it under Section 107(2).

The Calcutta High Court has held that interest under Section 73(13) is payable only if the taxpayer fails to pay the tax within the time specified in the order. The department cannot demand interest from the date of SCN issuance.

The courts have also held that the taxpayer may appeal even if they have paid the tax under protest. The payment does not bar the appeal, and the taxpayer may seek refund of the amount in the appeal itself.

Common mistakes and how to avoid them

One common mistake is treating a Section 73 notice as if it were a Section 74 notice. The reply strategy differs because the department bears the burden of proving fraud in a Section 74 case. Another mistake is ignoring the monetary threshold. If the demand is below Rs. 1,00,000 under Section 73 or below Rs. 10,000 under Section 74, the notice is jurisdictionally defective.

Practitioners often miss the 15-day reply deadline. The reply must be filed through the common portal or physically, as permitted. A delayed reply invites an ex parte order. Another mistake is not requesting a hearing under Section 75(2). The hearing is a statutory right, and the officer cannot deny it if the taxpayer requests it.

Some taxpayers fail to produce reconciliation between GSTR-1 and GSTR-3B. The department relies on mismatch data. The taxpayer must explain every discrepancy. Another mistake is not challenging the jurisdiction of the officer. If the officer is below the rank required by Section 73(10) or Section 74(10), the notice is void.

Missing the 30-day payment window for DRC-07 is serious. The taxpayer should pay the tax portion immediately and dispute the penalty and interest in the appeal. Filing the appeal without paying the pre-deposit or court fee results in rejection. The Appellate Authority will not admit the appeal.

Practical checklist

• Verify whether the notice is under Section 73 or Section 74.
• Check the monetary threshold: Rs. 1,00,000 for Section 73 and Rs. 10,000 for Section 74.
• Confirm the limitation period: three years or five years from the due date for GSTR-9.
• Verify service of SCN.
• Prepare a detailed reply addressing each ground.
• Produce books of accounts, returns and payment records.
• Request hearing under Section 75(2).
• Track the order under Section 75(4).
• Verify Form DRC-07 for correct tax period and computation.
• Pay tax within 30 days.
• File appeal within three months.
• Pay court fee under Section 107(2).
• Deposit pre-deposit under Section 107(1).
• Apply for waiver under Section 107(2) if needed.
• Preserve all annexures for the appeal.

Frequently asked questions

Can a show cause notice under Section 73 be issued for an amount below Rs. 1,00,000?

No. Section 73(10) mandates that the amount of tax not paid or short paid or wrongly availed must exceed Rs. 1,00,000. A notice issued below this threshold is jurisdictionally defective and liable to be set aside.

What happens if I fail to file a reply within 15 days?

The officer may proceed ex parte and pass an order under Section 75(4) without hearing the taxpayer. The taxpayer loses the opportunity to present documents and legal arguments. The order becomes binding and may lead to demand and recovery proceedings.

Is a pre-deposit of 10% mandatory before filing an appeal to the Commissioner (Appeals)?

Yes. Section 107(1)(a) requires a pre-deposit of 10% of the disputed tax for appeal to the Commissioner (Appeals). However, the Appellate Authority may dispense with the pre-deposit or permit payment in installments under Section 107(2) if sufficient cause is shown.

Does the 5-year limitation for Section 74 apply from the date of the financial year or from the due date of GSTR-9?

It applies from the due date for furnishing the annual return under Section 34, or from the date on which the annual return was furnished, whichever is later. The limitation does not run from the end of the financial year.

Can I appeal an order under Section 75(4) if the disputed amount is only Rs. 2,00,000?

Yes. The Finance Act 2022 removed the monetary threshold of Rs. 5,00,000 for filing appeal to the Commissioner (Appeals). An appeal can now be filed for any amount, though the pecuniary jurisdiction determines whether the appeal lies before the Commissioner (Appeals) or the GST Appellate Tribunal.

What is the court fee for filing an appeal to the Commissioner (Appeals)?

Section 107(2) fixes the court fee at Rs. 5,000, subject to the proviso that the fee shall not exceed the court fee payable under the Court Fees Act, 1877 for an appeal of the same value to the High Court.

Key takeaways

• Distinguish Section 73 and Section 74 at the outset. The burden of proving fraud lies on the department in a Section 74 case.

• The 15-day reply period runs from the date of service of the SCN, not from the date of issuance.

• The proper officer must be above the rank of Assistant Commissioner for Section 73 and the Commissioner or an authorised officer for Section 74.

• The limitation period for Section 73 is three years and for Section 74 is five years from the due date for furnishing GSTR-9.

• A Form DRC-07 is a demand order and must be paid within 30 days. If the taxpayer does not pay the demand within 30 days, interest at 18% per annum continues to accrue.

• An appeal must be filed within three months from the date of service of the

• An appeal must be filed within three months from the date of service of the order and the pre-deposit under Section 107(1) along with the court fee under Section 107(2) must be paid to secure admission.

• The Appellate Authority may waive the pre-deposit under Section 107(2) but the Delhi High Court expects proof of genuine financial hardship while the Gujarat High Court requires proof of actual financial distress.

Disclaimer

This article is published for general information on Indian law and does not constitute legal advice. Statutory provisions, rules and judicial positions change, and the position can differ from state to state. Consult a qualified advocate about your specific facts before acting.