CGST Act Sections 73, 74 & 74A: Key Learnings for Finance Leaders

Key Learning for Sections 73, 74 and 74A of CGST Act, 2017

• Section 73 empowers tax authorities to recover unpaid tax, excess ITC or erroneous refunds arising from any cause other than fraud within three years, and it caps penalty exposure at 0 – 10 % of the tax when the assessee pays promptly.

• Section 74 tackles the same defaults caused by fraud, wilful mis-statement or suppression, lengthening the limitation to five years and escalating penalties up to an amount equal to the tax (with 15 %, 25 % and 50 % relief bands for early payment).

• Section 74A—introduced for liabilities from FY 2024-25 onward—folds both regimes into a single 42-month notice period, keeps the lower penalty matrix for non-fraud cases and the higher one for fraud, and eliminates show-cause notices altogether where the differential tax is under ₹1,000, streamlining adjudication.

Comparison between Sections 73 vs 74 vs 74A (CGST Act, 2017)

Feature	Section 73(“No-fraud” cases)	Section 74(Fraud/wilful mis-statement/suppression)	Section 74A(Single, new code from FY 2024-25)
Scope of demand	Tax not paid/short-paid, ITC wrongly availed, erroneous refund for any reason other than fraud	Same events because of fraud, wilful mis-statement or suppression	Same events for any reason; merges 73 & 74 so officer need not first decide “fraud” v. “no-fraud”
Financial years covered	Up to FY 2023-24	Up to FY 2023-24	From FY 2024-25 onwards; SectionSection 73-74 cease for later years
Time-limit to serve SCN	2 yrs 9 mths (i.e. ≥ 3 mths before 3-yr order deadline) from due date of annual return / date of erroneous refund	4 yrs 6 mths (≥ 6 mths before 5-yr order deadline)	42 months (3 yrs 6 mths) from due date of annual return / date of erroneous refund – uniform for all cases
Time-limit to pass order	3 yrs from due date of annual return / date of erroneous refund	5 yrs from due date of annual return / date of erroneous refund	12 mths from SCN (extendable +6 mths) ⇒ practical outer limit ≈ 4 yrs 6 mths (5 yrs if extended)
Voluntary payment before SCN	Tax + interest ⇒ no penalty	Tax + interest + 15 % penalty ⇒ SCN not issued	(a) No-fraud: tax + interest ⇒ no penalty.(b) Fraud: tax + interest + 15 % penalty.
Payment within 30 days of SCN	0 % penalty (tax + interest only)	25 % of tax as penalty (with tax + interest)	Window extended to 60 days.• No-fraud: 0 % penalty• Fraud: 25 % penalty
Payment within 30 days of order	10 % of tax or ₹10k (whichever higher)	50 % of tax as penalty	Window 60 days. • No-fraud: 10 % of tax or ₹10k • Fraud: 50 % of tax
Penalty if paid later / decided by officer	10 % of tax or ₹10k (minimum)	100 % of tax (minimum ₹10k)	• No-fraud: 10 % of tax or ₹10k• Fraud: Equal to tax (100 %)
Threshold for issuing SCN	None	None	No SCN if differential tax < ₹1,000
Statement in lieu of SCN	Permitted for additional periods – service deemed SCN ⟶ Section 73(3)	Same ⟶ Section 74(3)	Same ⟶ Section 74A(3)

Five take-aways for CFOs & Finance Leads 📌

1. Single yard-stick from FY 2024-25
   Officers will issue all demand notices—fraud or not—under one section (74A). The earlier need to defend “intent” at SCN stage fades; the focus shifts to rebutting fraud allegations during adjudication. 

2. Uniform yet tighter limitation
   The 42-month SCN clock under Section 74A is longer than Section 73 but shorter than Section 74, giving businesses a predictable “4½-year” exposure window. Plan record-retention and reconciliations accordingly. 

3. Extra breathing space for quick closures
   The “reduced-penalty” window doubles from 30 days to 60 days (pre-SCN and post-SCN) under Section 74A—use it to cut litigation costs where the differential tax is not in dispute. 

4. Low-value disputes disappear
   Demands below ₹1,000 will not generate an SCN under Section 74A, sparing finance teams from immaterial battles. 

5. Penalty matrix still hinges on fraud
   Even under Section 74A, proving the absence of fraud keeps the penalty at 10 %; failure bumps it to the full tax amount. Robust documentation and timely corrections remain the best fraud-defence strategy. 

Practical Tip:
Update your internal GST compliance SOPs to reference Section 74A for any differential liability arising in FY 2024-25 onward. Keep separate workflows for legacy years (till 2023-24) that may still attract SCNs under Section  73 or 74.