Section 73 – Demand (non‑fraud)
Section 73 of CGST Act, 2017 – Demand of Tax (Cases Not Involving Fraud)
Updated on: February 2026
Prepared by: Yours Tax Consultant
1. Bare Act Text – Section 73 (Summary)
Section 73 of the CGST Act deals with determination of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised, for reasons other than fraud, wilful misstatement or suppression of facts.
The proper officer shall issue a show cause notice (SCN) and pass an order after giving the taxpayer an opportunity of being heard.
2. What does Section 73 mean? (Simple Explanation)
Section 73 applies when a GST default happens due to:
- Genuine mistake
- Clerical or accounting error
- Wrong interpretation of law
- System or compliance lapse
No intention to evade tax is involved. Therefore, penalty provisions are comparatively lenient.
3. When is Section 73 Applicable?
Section 73 is applicable in the following cases:
- Tax not paid or short paid
- Erroneous refund granted
- Wrong availment or utilisation of ITC
Important: If fraud, suppression, or wilful misstatement is alleged, Section 74 will apply instead of Section 73.
4. Procedure under Section 73 (Step-by-Step)
- Department detects short payment / wrong ITC
- Show Cause Notice (SCN) issued under Section 73(1)
- Taxpayer submits reply
- Personal hearing granted (if requested)
- Order passed under Section 73(9)
SCN and order are generally issued in Form DRC-01 and DRC-07 as per Rule 142 of CGST Rules.
5. Time Limits under Section 73
| Particulars | Time Limit |
|---|---|
| SCN issuance | At least 3 months before limitation date |
| Order under Section 73(9) | Within 3 years from due date of annual return |
6. Payment Before & After SCN
🔹 Payment Before SCN – Section 73(5)
If taxpayer pays tax + interest before SCN:
- No SCN shall be issued
- No penalty payable
🔹 Payment Within 30 Days of SCN – Section 73(8)
- Tax + interest payable
- No penalty
7. Penalty under Section 73
No mandatory penalty is leviable if tax and interest are paid within 30 days of SCN.
If tax is not paid:
- Penalty up to 10% of tax or ₹10,000 (whichever is higher)
8. Important Judicial Pronouncements
-
NKAS Services Pvt. Ltd. – Gujarat HC
SCN issued without proper reasoning is invalid. -
Mahadeo Construction – Jharkhand HC
Section 73 applies only where no fraud is alleged. -
Godrej & Boyce – Bombay HC
Mechanical DRC-01 without details violates natural justice.
9. Common Departmental Errors
- Issuing DRC-07 without valid SCN
- No opportunity of personal hearing
- Invoking Section 74 without evidence of fraud
- Passing non-speaking orders
10. Professional Tip
Always check whether ingredients of fraud are present. If not, insist that proceedings must remain strictly under Section 73 and not Section 74. Many GST demands fail on this ground alone.
11. Related Provisions
Disclaimer: This article is for educational and professional reference only. Readers are advised to consult a tax professional before taking action.
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