Section 73 – Determination of tax not paid or short paid (Non-fraud cases)
Section 73 of CGST Act, 2017 – Determination of Tax Not Paid or Short Paid (Non-Fraud Cases)
Updated on: February 2026 (as applicable till date)
Prepared by: Yours Tax Consultant
1. Objective of Section 73
Section 73 provides the procedure for determination and recovery of GST where tax has not been paid, short paid, erroneously refunded, or input tax credit has been wrongly availed or utilised without any fraud, wilful misstatement or suppression of facts.
This section applies to bona fide errors and genuine mistakes.
2. When Section 73 Applies
Section 73 applies in cases involving:
- Clerical or calculation errors
- Wrong classification or valuation
- Interpretational disputes
- Inadvertent ITC mistakes
Fraud cases are covered under Section 74, not Section 73.
3. Statutory Provision – Section 73 (Overview)
Where it appears to the proper officer that any tax has not been paid or short paid, or ITC has been wrongly availed or utilised, for reasons other than fraud, he shall issue a notice requiring the person to show cause why tax, interest and penalty should not be paid.
4. Voluntary Payment Before Show Cause Notice
Section 73(5):
The taxpayer may, before service of notice,
pay:
- Tax amount
- Applicable interest
and inform the proper officer in writing.
No penalty is payable if payment is made at this stage.
5. Issue of Show Cause Notice (SCN)
Section 73(1): If tax is not paid voluntarily, the proper officer shall issue a Show Cause Notice (SCN).
Time limit for issuing SCN:
- At least 3 months prior to the time limit for issuing the order
6. Time Limit for Passing Order
Section 73(10):
The proper officer must issue the order
within:
- 3 years from the due date for furnishing annual return for the relevant financial year
Orders passed beyond limitation are invalid.
7. Payment After SCN but Before Order
Section 73(8):
If tax and interest are paid
within 30 days of SCN:
- No penalty is payable
- Proceedings are deemed concluded
8. Penalty under Section 73
Penalty is:
- Nil if payment made before SCN
- Nil if payment made within 30 days of SCN
- 10% of tax or ₹10,000 (whichever is higher) if order is passed
Penalty is significantly lower than Section 74.
9. Opportunity of Being Heard
Before passing order, the proper officer must:
- Grant opportunity of personal hearing
- Consider taxpayer’s reply
- Pass a reasoned order
Violation of natural justice renders the order invalid.
10. Section 73 vs Section 74
| Section 73 | Section 74 |
|---|---|
| No fraud | Fraud / suppression |
| Lower penalty | 100% penalty |
| 3 years limitation | 5 years limitation |
11. Common Judicial Principles
Courts have consistently held that:
- Mere difference of opinion is not suppression
- Extended period cannot be invoked casually
- Burden of proving fraud lies on department
Wrong invocation of Section 74 instead of Section 73 has led to quashing of demands.
12. Related Rules & Forms
- Rule 142 – Notice and order forms
- FORM GST DRC-01 – SCN
- FORM GST DRC-03 – Voluntary payment
13. Professional Insight
Section 73 reflects the principle that genuine mistakes should not be punished harshly. Early reconciliation, voluntary payment, and proper reply to SCN can close disputes without litigation. Correct classification between Section 73 and 74 is the key to GST defence.
Disclaimer: This article is prepared based on the CGST Act, CGST Rules, notifications and prevailing legal position as applicable till date. Demand proceedings must follow limitation, natural justice, and proportionality.
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