GST Show Cause Notices under Sections 73, 74 and 74A: A Practical Guide

What a GST show cause notice is

A show cause notice (SCN) is the formal starting point of GST demand proceedings. It sets out why the proper officer believes that tax has not been paid, has been short paid or erroneously refunded, or that input tax credit (ITC) has been wrongly availed or utilised, and it asks the taxpayer to explain why the proposed tax, interest and penalty should not be demanded. A summary of the notice is uploaded electronically in Form GST DRC-01.

Before issuing a notice, the officer may communicate the proposed liability in Form GST DRC-01A, giving the taxpayer an opportunity to pay or respond at a pre-notice stage.

Section 73: cases not involving fraud

Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act) applies where the short payment, non-payment, erroneous refund or wrong availment of credit arose for reasons other than fraud, wilful misstatement or suppression of facts to evade tax. Under this section, the order is to be issued within three years from the due date for furnishing the annual return for the financial year concerned, and the notice must be issued at least three months before that time limit.

Section 74: fraud, wilful misstatement or suppression

Section 74 applies where the department alleges fraud, wilful misstatement or suppression of facts to evade tax. The time limit for the order is five years from the due date for the annual return, and the notice must be issued at least six months before that limit. Penalties under Section 74 are significantly higher than under Section 73, which is why the classification of a notice under one section or the other is often a central issue in the reply.

Section 74A: financial year 2024-25 onwards

The Finance (No. 2) Act, 2024 inserted Section 74A into the CGST Act. It provides a single procedure for demands relating to financial year 2024-25 onwards, whether or not fraud is alleged. Sections 73 and 74 continue to govern demands for periods up to financial year 2023-24. Under Section 74A, a common time limit applies to the issue of the notice and the order, while the penalty continues to depend on whether fraud, wilful misstatement or suppression of facts is established.

Because the time limits and penalty provisions differ between the three sections, the first step in reviewing any notice is to confirm the financial year involved and the section under which the notice has been issued.

Reviewing a notice: a working checklist

• Jurisdiction and authority: is the notice issued by the proper officer, with the correct registration details?
• Limitation: has the notice been issued within the time permitted for the financial year and section concerned?
• Section applied: if Section 74 (or the fraud limb of Section 74A) is invoked, does the notice actually set out facts showing fraud, wilful misstatement or suppression?
• Computation: does the demand reconcile with the returns, books, e-invoices, e-way bills and GSTR-2A/2B data?
• Relied-upon documents: have all documents on which the notice relies been supplied? If not, request them in writing.
• Payment options: for undisputed amounts, the statute provides reduced penalty consequences for early payment in certain cases.

Reply and personal hearing

The reply is filed in Form GST DRC-06 within the time allowed in the notice. It should address each allegation, attach supporting evidence and specifically request a personal hearing. Section 75(4) of the CGST Act requires an opportunity of hearing where the taxpayer requests it in writing or where an adverse decision is contemplated. Under Section 75(5), adjournments may be granted, but not more than three times in the proceedings.

The final order is summarised in Form GST DRC-07. Under Section 75(7), the amount confirmed cannot exceed the amount specified in the notice, and no demand can be confirmed on grounds other than those specified in the notice. If the order is adverse, the next steps are rectification under Section 161 (for errors apparent on the record) or an appeal under Section 107 — see the guide to GST appeals.

This article is general information about the law as understood on the review date shown above. It is not legal advice and does not create an advocate–client relationship. Statutory provisions are amended from time to time; verify the current text before acting.