Section 73 of the CGST Act covers demands of tax not paid, short paid or wrongly refunded for reasons other than fraud or wilful misstatement. A show-cause notice is issued in Form DRC-01, and a reply is filed in Form DRC-06. Paying the tax with interest before the notice avoids penalty; paying within 30 days of the notice limits penalty significantly.
Understanding the Section 73 notice
A Section 73 SCN is issued where the shortfall is not due to fraud, wilful misstatement or suppression. It is preceded by an intimation in Form DRC-01A and formalised in Form DRC-01, specifying the tax, interest and penalty proposed and the period. The proper officer must issue the order within the statutory time limit (historically three years from the due date of the annual return for the year).
The reduced-penalty windows
| When you pay tax + interest | Penalty |
|---|---|
| Before the SCN (on DRC-01A) | Nil |
| Within 30 days of the SCN | Nil |
| After order | 10% of tax or Rs.10,000, whichever is higher |
This is the key strategic point: in a genuine Section 73 case, early payment can extinguish penalty entirely.
Structuring the reply (DRC-06)
- Facts — restate the period, the alleged shortfall and the figures.
- Grounds — address each allegation with the legal provision, reconciliation and documents (returns, ledgers, GSTR-2B).
- Relief — state what is accepted (if any) and paid, and what is contested and why.
- Annexures — reconciliations, invoices, payment challans (DRC-03).
- Request a personal hearing under Section 75(4).
Common defences and pitfalls
- Mismatch demands (GSTR-1 vs 3B, 2B vs 3B) are often explained by timing — reconcile and document.
- Do not ignore the DRC-01A stage; a clear reply there can close the matter before a formal SCN.
- Always ask for a personal hearing; an order passed without a requested hearing is vulnerable.
- Pay admitted dues via DRC-03 and quote the ARN in your reply.
Anatomy of a winning DRC-06 reply
A Section 73 reply that survives adjudication has five parts, in this order: (1) preliminary objections — jurisdiction, limitation, vagueness of the SCN, absence of DRC-01A pre-consultation where required; (2) facts — a clean chronology with annexure references; (3) merits — issue-wise rebuttal anchored to sections, rules, circulars and rulings; (4) quantification — your recomputation of the demand, even in the alternative; (5) prayer — drop the proceedings, grant personal hearing, permit additional submissions. Attach a paginated annexure set; adjudicating authorities decide from the file, and the file you build is the file the appellate authority will read too.
Limitation arithmetic you must run first
| Event | Section 73 (non-fraud) |
|---|---|
| Order deadline | 3 years from the annual return due date for the FY |
| SCN deadline | At least 3 months before the order deadline |
Check both dates against the SCN on day one — time-barred notices are dropped on limitation alone. Then check the notice's DIN, the period grouping (multi-year SCNs need year-wise quantification), and whether the annexures actually support the table of demand — mismatches between the SCN narrative and the DRC-01 summary are genuine defects worth pleading.
The settlement mathematics
- Pay with interest before the SCN (DRC-03): no penalty — Section 73(5).
- Pay within 30 days of the SCN: no penalty — Section 73(8); proceedings conclude.
- Contest and lose at adjudication: 10% of tax or Rs.10,000, whichever is higher.
So on any issue where the department is plainly right (a 2B mismatch you cannot reconcile, an RCM miss), pay that component within the 30-day window and contest only the genuinely disputed issues — DRC-06 allows issue-wise partial payment and reply. This splits the demand, stops the penalty clock on the conceded part, and signals credibility on the contested part.
Hearing and after
Ask for the personal hearing (Section 75(4) makes it mandatory where any adverse decision is contemplated — an order passed without offering one is set aside on that ground alone), attend with a written synopsis, and file post-hearing submissions capturing what was argued. If the order still goes against you: appeal to the first appellate authority within 3 months with 10% pre-deposit of the disputed tax. Diarise the timeline the day the order arrives — condonation beyond one further month is not available, and a missed appeal window converts a defensible demand into a recovery certificate. Track forms and procedure at gst.gov.in.
The five most common Section 73 issues — and the standard defences
| Issue | First-line defence |
|---|---|
| GSTR-2A/2B vs 3B ITC mismatch | Circular 183/2022 (FY 2017-19) and 193/2023 procedures — certificates from suppliers/CA for the gap; year-specific tolerance rules |
| GSTR-1 vs 3B turnover difference | Reconciliation: credit notes, amendments, advances — most gaps are timing, not suppression |
| RCM not paid (GTA, legal, import of services) | Pay with interest, claim ITC where creditable — revenue-neutrality argument limits real exposure |
| Interest on delayed 3B | Verify net-cash computation under proviso to Section 50(1); recompute day-wise |
| E-way bill / e-invoice lapses feeding turnover estimates | Attack the estimation methodology; produce the actual invoice trail |
Most Section 73 SCNs are system-generated from return-data mismatches — which means most are winnable on reconciliation quality. The reply that wins is the one whose annexures do the arguing.
Key takeaways
- Section 73 = non-fraud demands; SCN in DRC-01, reply in DRC-06.
- Pay tax + interest before SCN or within 30 days for nil penalty.
- Always request a personal hearing under Section 75(4).
- Section 74A may govern limitation for FY 2024-25 onward.