Library / Goods and Services Tax: The Professional's Master Guide

36. Demands and Recovery (Sections 73 to 84, 128A)

A demand is the department's formal claim that tax has been short paid or wrongly refunded, or that input tax credit has been wrongly availed or utilised. The demand provisions decide how far back the department can go, how the notice must be framed, and how much penalty early payment avoids. Recovery provisions decide how an unpaid demand is collected.

For periods up to FY 2023-24, demands are raised under section 73 (no fraud) or section 74 (fraud, wilful misstatement or suppression). From FY 2024-25 onwards, section 74A, inserted by the Finance (No. 2) Act, 2024, is the single provision for both kinds of cases, with one time limit and two penalty scales.

36.1 Sections 73, 74 and 74A Compared

Feature	Section 73	Section 74	Section 74A
Periods	FY 2017-18 to 2023-24	FY 2017-18 to 2023-24	FY 2024-25 onwards
Nature	No fraud or suppression	Fraud, wilful misstatement or suppression to evade tax	Both, with separate penalty scales
Last date for notice	3 months before order limit (33 months from annual return due date)	6 months before order limit (54 months)	42 months from annual return due date or erroneous refund
Order time limit	3 years from annual return due date	5 years from annual return due date	12 months from notice, extendable by 6 months
Penalty in order	10% of tax or Rs. 10,000, higher	100% of tax	Non-fraud: 10% or Rs. 10,000, higher; fraud: 100%
Paid before notice	No penalty	15%	Non-fraud: no penalty; fraud: 15%
Paid after notice	Within 30 days: no penalty	Within 30 days: 25%	Within 60 days: non-fraud nil, fraud 25%
Paid after order	Full penalty	Within 30 days: 50%	Fraud: within 60 days, 50%
Small amounts	No threshold in the section	No threshold in the section	No notice if tax is Rs. 1,000 or less

In every case, interest under section 50 is payable in addition. It is compensatory and mandatory, and no officer can waive it. The only statutory waiver was the one-time scheme under section 128A.

Illustration 180: Working out time limits for a notice

FY 2022-23: GSTR-9 due date 31 December 2023. Under section 73 the order must be passed by 31 December 2026, so the notice must be issued by 30 September 2026. Under section 74 the order limit is 31 December 2028 and the notice limit 30 June 2028.

FY 2023-24: GSTR-9 due date 31 December 2024. Section 73 notice by 30 September 2027; order by 31 December 2027.

FY 2024-25: GSTR-9 due date 31 December 2025. Section 74A notice by 30 June 2029 (42 months). If the notice is issued on 15 March 2029, the order must be passed by 15 March 2030, or by 15 September 2030 if extended.

Check first whether the due date of the annual return for the year was extended by notification; the limits run from the extended date.

36.2 Pre-notice Consultation (Rule 142(1A), DRC-01A)

Before issuing a notice, the proper officer may communicate the proposed tax, interest and penalty in Part A of DRC-01A. The taxpayer may pay through DRC-03 or file submissions in Part B; if satisfied, the officer closes the matter in Part C. Rule 142(1A) has used the word "may" since October 2020. For the earlier period, when it said "shall", several High Courts held the intimation mandatory; for later periods views differ. The rule covers notices under sections 73, 74 and 74A.

Practice note

Treat DRC-01A as the cheapest point to settle. Under section 73 and section 74A (non-fraud), full payment of tax and interest before the notice means no penalty at all. Where the DRC-01A is wrong, a clear Part B reply often stops the notice from being issued.

36.3 The Show Cause Notice and Statement (DRC-01)

The show cause notice is served with a summary in DRC-01, and the taxpayer replies in DRC-06. Where a notice has been issued for one period, a statement under section 73(3), 74(3) or 74A(3) can be served for later periods on the same grounds, without a fresh notice, and is treated as a notice.

A valid notice must state the facts, the provisions invoked, the period, the tax and its computation, the documents relied upon and, where fraud is alleged, the specific acts of fraud, wilful misstatement or suppression. A CBIC officer's communication must also carry a document identification number (DIN).

Judicial view: The show cause notice is the foundation

Commissioner of Central Excise v. Brindavan Beverages (P) Ltd. (Supreme Court, 2007): The show cause notice is the foundation on which the department builds its case. If the allegations are vague and do not give the material particulars, the notice is bad. The order cannot go beyond the notice.

Under GST the same principle is written into section 75(7): the amount demanded in the order cannot exceed the amount in the notice, and no demand can be confirmed on grounds other than those in the notice. A reply should always check whether the order has travelled beyond the notice.

36.4 Hearing, Adjournments and the Order (Section 75)

Personal hearing: section 75(4) requires a hearing where the taxpayer asks for it or where any adverse decision is contemplated. Orders passed without one are regularly set aside.
Adjournments: a maximum of three adjournments can be granted, for sufficient cause and recorded in writing (section 75(5)).
Reasoned order within the notice: the order must give reasons (section 75(6)) and cannot exceed the notice (section 75(7)).
Fraud not proved: under section 75(2), where an appellate authority, tribunal or court holds that the charges of fraud or suppression are not established, the tax is redetermined as if the notice had been issued under the non-fraud provision. Penalty falls to the non-fraud scale.
One penalty: section 75(13) bars a second penalty for the same act under another provision once penalty is imposed under section 73, 74 or 74A.

36.5 Penalty Computations under Sections 73, 74 and 74A

Illustration 181: Section 73: penalty at each payment stage

Nair Pharma Distributors availed ITC of Rs. 6,00,000 (CGST Rs. 3,00,000 and SGST Rs. 3,00,000) in FY 2022-23 on invoices that did not meet section 16(2). There is no allegation of fraud. Interest under section 50(3) up to the relevant date is taken as Rs. 1,59,781 (Rs. 6,00,000 x 18% x 540 / 365).

When paid	Tax (Rs.)	Interest (Rs.)	Penalty (Rs.)
Before notice (after DRC-01A)	6,00,000	1,59,781	Nil
Within 30 days of notice	6,00,000	As on payment date	Nil (proceedings deemed concluded)
After 30 days or after order	6,00,000	As on payment date	60,000 (10%, higher than Rs. 10,000)

If the tax had been only Rs. 72,000, 10% would be Rs. 7,200, so the penalty in the order would be the minimum of Rs. 10,000.

Illustration 182: Section 74: penalty at each payment stage

Gupta Steel Traders suppressed cash sales in FY 2021-22. Tax evaded Rs. 20,00,000. Interest is payable in every case.

Step 1: Paid with interest before notice: penalty 15% = Rs. 3,00,000.

Step 2: Paid with interest within 30 days of notice: penalty 25% = Rs. 5,00,000.

Step 3: Paid with interest within 30 days of the order: penalty 50% = Rs. 10,00,000.

Step 4: Paid later or contested and lost: penalty 100% = Rs. 20,00,000.

Illustration 183: Section 74A: both scales (FY 2024-25)

Non-fraud case: Patel Components short-paid tax of Rs. 4,80,000 due to a rate error. If tax and interest are paid before the notice, no notice is issued and no penalty arises. If paid within 60 days of the notice, penalty is nil and proceedings conclude. If paid later, penalty is 10% = Rs. 48,000 (higher than Rs. 10,000).

Fraud case: Sagar Enterprises availed fake ITC of Rs. 12,00,000. Before notice: 15% = Rs. 1,80,000. Within 60 days of notice: 25% = Rs. 3,00,000. Within 60 days of order: 50% = Rs. 6,00,000. Otherwise: 100% = Rs. 12,00,000.

Small amount: if the tax proposed is Rs. 900, no notice can be issued under section 74A, since it is Rs. 1,000 or less.

Key point

The 30-day windows under sections 73 and 74 became 60-day windows under section 74A. Clients who remember the old law often miss the extra time, and professionals sometimes wrongly advise that the old 30-day window applies to FY 2024-25 notices.

36.6 Tax Collected but Not Paid (Section 76)

Any person who collects an amount as tax must pay it to the Government, whether or not the supply was taxable. Section 76 allows recovery with interest after notice and hearing, with the order within one year of the notice; penalty follows under section 122. A common case is an unregistered or composition supplier who shows GST on the bill.

36.7 The Section 128A Waiver Scheme

Section 128A, inserted by the Finance (No. 2) Act, 2024, waived interest and penalty on demands under section 73 for FY 2017-18, 2018-19 and 2019-20, if the full tax demanded was paid by 31 March 2025. It also covered section 74 notices later redetermined under section 73 by an appellate authority or court. It did not cover erroneous refunds. Applications were filed under rule 164 of the CGST Rules in SPL-01 (notice or statement stage) or SPL-02 (order stage) by 30 June 2025, and any pending appeal or writ on the same demand had to be withdrawn. Interest and penalty already paid were not refunded.

Illustration 184: Waiver under section 128A

Joshi Electricals had a section 73 order for FY 2018-19: tax Rs. 9,40,000, interest Rs. 7,12,000 and penalty Rs. 94,000. It had filed an appeal.

Step 1: It paid tax of Rs. 9,40,000 through DRC-03 on 22 March 2025 and withdrew the appeal.

Step 2: It filed SPL-02 before 30 June 2025. Interest of Rs. 7,12,000 and penalty of Rs. 94,000, total Rs. 8,06,000, were waived.

The scheme is closed. Keep the SPL orders safely, because the department's systems sometimes continue to show waived interest as outstanding.

36.8 General Practice and Section 11A

Section 11A, inserted by the Finance (No. 2) Act, 2024, allows the Government, on the Council's recommendation, to direct that tax short levied because of a general practice in the trade shall not be recovered for the notified period.

36.9 Suppression, Extended Period and Parallel Proceedings

Section 74, and the fraud limb of section 74A, require proof of fraud, wilful misstatement or suppression with intent to evade tax. Where the facts were disclosed in returns, or the issue was one of interpretation, the extended period is usually not available.

Judicial view: Suppression means deliberate withholding

Pushpam Pharmaceuticals Co. v. Collector of Central Excise (Supreme Court, 1995): Suppression of facts means failure to disclose full information with intent to evade duty. A mere omission, or a bona fide belief, is not suppression.

Uniworth Textiles Ltd. v. Commissioner of Central Excise (Supreme Court, 2013): Mere non-payment of duty does not by itself establish suppression or wilful misstatement. The department must show a conscious and deliberate withholding of information. These excise rulings carry over to sections 74 and 74A because the language is the same.

Revenue neutrality is a related argument. Where the tax demanded would have been fully available as credit, for example RCM that the payer could take as ITC at once, there is no motive to evade. It does not remove tax and interest, but it is a strong argument against the extended period and penalty.

Whether one notice can cover several financial years is disputed. The Kerala, Madras and Bombay High Courts have required year-wise proceedings; the Delhi and Allahabad High Courts have upheld consolidated notices, mainly in fraud cases, and the Supreme Court dismissed the SLPs against two of the Delhi rulings without laying down the law. A later Bombay High Court bench referred the question to a larger bench in April 2026, and in January 2026 the Supreme Court issued notice on the Revenue's appeal against the Kerala High Court ruling. The issue is pending; raise the objection in the reply and in appeal.

Judicial view: Central and State officers on the same subject

Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East (Supreme Court, 2025): Under section 6(2)(b) of the CGST Act, once one authority (Central or State) has initiated proceedings on a subject matter by issuing a show cause notice, the other authority cannot initiate proceedings on the same subject matter. Summons and inquiries are not "proceedings" for this bar. The Court gave guidelines for cooperation between the two administrations.

Practical point: when a second notice arrives from the other administration, compare the period, the issue and the amount. If they overlap, inform both authorities in writing with copies of the first notice.

36.10 Recovery (Sections 78 and 79)

An amount confirmed by an order must be paid within three months of service (section 78), unless the officer, for recorded reasons, requires earlier payment. The summary of the order in DRC-07 becomes the recovery demand. An appeal with the pre-deposit stays recovery of the balance (sections 107(7) and 112(9)).

Mode under section 79(1)	How it works	Form
(a) Deduction from money due	Officer adjusts amounts owed by any Government department, such as refunds	DRC-09
(b) Detention and sale of goods	Goods under the control of officers are detained and sold	DRC-10, DRC-11, DRC-12
(c) Garnishee notice	Debtors, banks or anyone holding money for the defaulter are directed to pay the Government	DRC-13, DRC-14
(d) Distraint of property	Movable or immovable property is attached and sold	DRC-16, DRC-17
(e) Certificate to Collector	Recovered as arrears of land revenue	DRC-18
(f) Magistrate	Recovered as if it were a fine	DRC-19

A bank or debtor who receives a DRC-13 and ignores it becomes a defaulter for that amount. Clients should route every DRC-13 to their tax team the same day.

36.11 Provisional Attachment (Section 83)

During proceedings under sections 62, 63, 64, 67, 73, 74 or 74A, the Commissioner can provisionally attach any property, including bank accounts, of the taxable person or of a person covered by section 122(1A), if he is of the opinion that it is necessary to protect the revenue. The order is in DRC-22. The attachment ceases after one year from the order. The person may file objections within seven days (rule 159(5)) and must be heard.

Judicial view: Provisional attachment is a drastic power

Radha Krishan Industries v. State of Himachal Pradesh (Supreme Court, 2021): Provisional attachment is draconian and must be based on tangible material showing that it is necessary to protect revenue, not on a mere possibility. The Commissioner must personally form the opinion, give an opportunity of hearing on objections, and pass a reasoned order. Attachment of a person's receivables from others was set aside on the facts.

36.12 Instalments, Rectification and Liability of Others

Section 80 and rule 158 allow the Commissioner to extend time or permit payment in up to 24 monthly instalments, with interest, on an application in DRC-20. Amounts self-assessed in a return are not eligible. Instalments are not allowed where the amount is less than Rs. 25,000, where the person has already defaulted on another amount for which recovery is under way, or where the condition in rule 158(2)(b) relating to instalments in the preceding financial year is attracted. Default in any one instalment makes the whole balance payable at once.

Illustration 185: Instalments under section 80

Kavya Garments has a confirmed demand of Rs. 18,00,000 and accepts it. It applies in DRC-20. The Commissioner allows 24 monthly instalments of Rs. 75,000 each, with interest under section 50 on the outstanding balance. If the eighth instalment is missed, the unpaid balance of Rs. 12,75,000 (17 x Rs. 75,000) becomes payable at once and can be recovered under section 79.

Section 161 allows any authority to rectify an error apparent on the face of the record within three months of the order, on its own or on the taxpayer's application, but not after six months, except for purely clerical or arithmetical errors. A rectification that affects a person adversely needs a hearing.

Sections 85 to 94 decide who else pays. On transfer of a business, transferor and transferee are jointly and severally liable for tax up to the transfer (section 85). Agents and principals (section 86), amalgamating companies (section 87) and companies in liquidation (section 88) are covered. Directors of a private company are jointly and severally liable for its unrecovered tax unless they prove that non-recovery is not due to their gross neglect, misfeasance or breach of duty (section 89). Partners, trustees, legal heirs and others follow in sections 90 to 94.

36.13 Limitation Extensions During COVID

The Supreme Court, in its suo motu proceedings, excluded 15 March 2020 to 28 February 2022 in computing limitation for judicial and quasi-judicial proceedings. Under section 168A, Notification 13/2022-Central Tax excluded 1 March 2020 to 28 February 2022 for refunds and erroneous refund demands and extended the section 73 order limit for FY 2017-18; Notifications 9/2023 and 56/2023 extended order limits for FY 2017-18 to 2019-20. High Courts differ on the validity of the later extensions and the question is before the Supreme Court.

Chapter summary

• Sections 73 and 74 govern demands up to FY 2023-24; section 74A governs FY 2024-25 onwards with a 42-month notice limit and a 12-month order limit.

• Interest under section 50 is mandatory; penalties fall sharply with early payment: nil before notice or within the window in non-fraud cases, 15%, 25% and 50% in fraud cases.

• DRC-01A under rule 142(1A) is the cheapest point to settle or to stop a wrong notice.

• The notice is the foundation: the order cannot exceed it or rest on new grounds (section 75(7)); hearing is required and adjournments are limited to three.

• Extended period needs deliberate suppression (Pushpam, Uniworth); parallel proceedings on the same subject are barred once one authority issues a notice (Armour Security).

• Recovery follows three months after the order through DRC-07, garnishee notices in DRC-13 and other modes; provisional attachment lasts one year and must follow Radha Krishan.

• Instalments up to 24 months, rectification within three months, and liability of transferees and private company directors complete the recovery picture.