Short answer: Section 73 of the CGST Act applies to tax short paid or credit wrongly availed without fraud; Section 74 applies only where there is fraud, wilful misstatement or suppression of facts to evade tax, and it carries a longer limitation period and heavier penalty. For FY 2024-25 onwards, both are replaced by Section 74A, with a single 42-month window. The Supreme Court has held that the facts of fraud must appear in the notice itself.
The basic difference
CBIC Circular No. 258/04/2026-GST of 26 October 2026 summarises the line. Section 73 covers cases without fraud, wilful misstatement or suppression; Section 74 covers cases with these elements and an intent to evade tax. Non-payment or a discrepancy found in scrutiny does not, by itself, justify Section 74. An incorrect statement is not automatically a wilful misstatement, and an omission is not suppression unless it is deliberate. Where a notice invokes both sections, the grounds and amounts must be separated.
In Tata Steel Limited v. Union of India, reported on 26 August 2026, the Supreme Court (Justice J.B. Pardiwala and Justice K. Vinod Chandran) set aside a Section 74 notice that contained only a “bland statement” of suppression, holding that the extended limitation cannot be invoked by reciting the words without foundational facts.
Section 74A for FY 2024-25 onwards
- Sections 73 and 74 continue to govern demands up to FY 2023-24; Section 74A applies from FY 2024-25.
- The notice may be issued within 42 months from the due date for the annual return, or from the date of an erroneous refund.
- The order must be passed within 12 months of the notice, extendable by up to 6 months.
- In non-fraud cases, the penalty is 10% of tax or Rs 10,000, whichever is higher, and nil if tax and interest are paid within 60 days of the notice.
- In fraud cases, the penalty equals the tax, reduced to 15%, 25% or 50% of tax where payment with interest is made before the notice, within 60 days of the notice, or within 60 days of the order, respectively.
One notice for several years
High Courts differ on whether one notice may cover several financial years. The Bombay High Court, in Rainbow Greeners Nagpur v. State of Maharashtra (reported 27 February 2026) and later rulings, has held that each year has its own limitation running from the due date of that year’s annual return, and has quashed composite notices. The Delhi High Court, in Technosys Integrated Solutions v. Union of India (reported 17 March 2026), has held that a notice may cover more than one year. The 57th GST Council has recommended a validation clause for notices held invalid on this ground.
Waiver scheme and proposed relief
Section 128A, effective from 1 November 2024, offered waiver of interest and penalty on Section 73 demands for FY 2017-18 to 2019-20 where the full tax was paid within the prescribed time; it did not extend to Section 74 cases. On 8 October 2026, the GST Council also recommended no notice where tax is below Rs 10,000, and a reduced 5% penalty in non-fraud cases where tax and interest are paid within 30 days (Section 73) or 60 days (Section 74A) of the order. These need notification or amendment.
Related questions
How do I know if my notice is really a Section 74 case?
Read the notice for specific facts showing a deliberate act to evade tax. If it only repeats the words fraud or suppression, that is a ground of challenge after Tata Steel and Circular 258.
Is a DRC-01 summary enough as a show cause notice?
No. In Riyan Enterprises (13 May 2026), the Gauhati High Court held that a summary in Form DRC-01 is not a substitute for the show cause notice itself.
How long do I have to appeal an order?
Under Section 107, an appeal lies within three months of communication of the order, and a further one month may be condoned for sufficient cause.
Can I still apply under the Section 128A waiver?
The scheme was time-bound and limited to Section 73 demands for FY 2017-18 to 2019-20. Check the status of any application already filed rather than assuming the benefit applies.
Practical points
- Identify the financial year and whether Section 73, 74 or 74A applies.
- Compute limitation year by year from the due date of the annual return.
- Reconcile the notice figures with GSTR-1, GSTR-3B and GSTR-9 before replying.
- Ask for a personal hearing in writing and keep records of each hearing.
- Weigh early payment where the penalty reductions under Section 74A make it worthwhile.
Sources: LiveLaw Biz, Tata Steel v. Union of India, 26 August 2026; CAclubindia, CBIC Circular 258/04/2026-GST, 28 October 2026; ClearTax, Section 74A of the CGST Act; LiveLaw Biz, Bombay HC in Rainbow Greeners, 27 February 2026.
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