Section 73 of the CGST Act applies to tax demands not involving fraud, while Section 74 applies where the shortfall is due to fraud, wilful misstatement or suppression of facts. Section 74 carries higher penalties (up to 100% of tax) and longer time limits than Section 73. From FY 2024-25, Section 74A introduces a unified framework.
The core distinction: intent
The dividing line is mens rea — intent. Section 73 covers bona fide shortfalls: interpretation differences, clerical errors, genuine mismatches. Section 74 requires the department to establish fraud, wilful misstatement or suppression of facts to evade tax. Courts have repeatedly held that mere non-payment or a mismatch does not amount to suppression; suppression needs a positive, deliberate act (the line in Pushpam Pharmaceuticals and Cosmic Dye Chemical from the excise era continues to guide GST adjudication).
Penalty and time limits compared
| Particulars | Section 73 (no fraud) | Section 74 (fraud) |
|---|---|---|
| Trigger | Bona fide short payment | Fraud / wilful misstatement / suppression |
| Time limit for order | 3 years from due date of annual return | 5 years from due date of annual return |
| Penalty in order | 10% of tax or Rs.10,000 | 100% of tax |
| Penalty if paid before SCN | Nil | 15% of tax |
| Penalty if paid within 30 days of SCN | Nil | 25% of tax |
Why the department's choice matters
Invoking Section 74 lets the department reopen older periods and impose heavy penalty, so it is sometimes used where Section 73 would be apt. A key defence is to show the absence of any suppression — that all facts were disclosed in returns — which can knock the demand down to Section 73 limits or out of time entirely.
The Section 74A reform
For periods from FY 2024-25, the Finance (No. 2) Act 2024 inserted Section 74A, providing a common time limit (broadly 42 months from the due date of the annual return) and a common SCN/order mechanism, while preserving the higher penalty where fraud is established. Verify the exact mechanics and dates as the provision is implemented.
Key takeaways
- 73 = honest error; 74 = fraud/suppression with up to 100% penalty.
- Time limits: 3 years (73) vs 5 years (74) from the annual-return due date.
- Suppression needs a deliberate act, not a mere mismatch.
- Section 74A unifies the framework from FY 2024-25.