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A GST demand notice is a formal show-cause process, not automatically a final liability. Identify the statutory section, tax period, allegations and calculation; answer with indexed records; request a hearing when appropriate; and protect the three-month first-appeal window. Sections 73 and 74 have different standards, deadlines and payment consequences, and the rule applicable to the relevant tax period must be confirmed before relying on any date.
What a GST demand notice means
A demand notice asks why specified tax, interest and any applicable penalty should not be recovered. It normally follows a perceived short payment, erroneous refund or wrongly availed or utilised input tax credit. The notice starts a proceeding; the demand becomes enforceable through an order after the statutory process.
The first question is not simply “How much is demanded?” It is “Which legal route and which facts are alleged for each tax period?” The CBIC-hosted Central Goods and Services Tax Act text distinguishes the principal routes as follows:
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Outbyte Driver Updater FREEFix the driver behind crashes, sound loss and screen glitchesFind Drivers →Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →| Issue | Section 73 route | Section 74 route |
|---|---|---|
| Conduct alleged | Tax not paid or short paid, erroneous refund, or wrongly availed or utilised input tax credit for reasons other than fraud, wilful misstatement or suppression to evade tax. | The same categories of tax, refund or input-tax-credit dispute, but alleged to result from fraud, wilful misstatement or suppression to evade tax. |
| Why the distinction matters | Different order limitation and a lower statutory penalty framework, with early-payment provisions. | Longer order limitation, a penalty framed as equivalent to the tax, and reduced-penalty payment windows in specified circumstances. |
| Possible change of route | If an appellate authority, tribunal or court finds that fraud or suppression under section 74 is not established, section 75(2) requires determination as if the notice had been issued under section 73. | |
Do not accept the section number without testing the factual pleading. A notice labelled section 74 should identify the conduct said to constitute fraud, wilful misstatement or suppression. Compare every allegation with returns, invoices, contracts, ledgers, e-way bills, input-tax-credit reconciliations and earlier correspondence.
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Time limits: how to analyse the deadline without relying on a stale rule
The statutory text available from CBIC states that, for section 73, an order is to be issued within three years from the due date for furnishing the annual return for the relevant financial year, or within three years from the date of an erroneous refund. The notice must be issued at least three months before that order limit. For section 74, the corresponding periods in that text are five years and at least six months.
Those figures are not a universal answer for every notice being handled in 2026. The current law may depend on the tax period, amendments and commencement provisions. The available material does not establish the operation or commencement of section 74A, so obtain the authoritative current Act or Gazette text before stating that the three-year or five-year formula governs a particular case.
Build a limitation calculation
- List every financial year, return period and issue separately. A single notice can contain more than one tax period or more than one legal theory.
- For an annual-return case, record the statutory due date for the relevant annual return. For an erroneous-refund case, record the actual refund date instead.
- Apply the order period in the version of the Act that governs that period and allegation.
- Work backwards to the minimum notice lead time: three months for the retrieved section 73 text and six months for the retrieved section 74 text.
- Check statutory exclusions or extensions, including periods excluded because of a stay or another provision. Preserve the order, court direction or other document that supports any exclusion.
- Record the date and method by which the notice and any later order were communicated. Service and communication dates can determine whether a response or appeal is timely.
Where the calculation is close, show both the officer’s date and your alternative date in the reply, with the event and document supporting each calculation. Do not treat a portal upload date, an order signature date and a communication date as interchangeable.
What to check immediately after service
- Secure the evidence. Download the notice, annexures, electronic summary, demand calculation, portal acknowledgements and any linked statements. Record the service channel, date and stated reply or hearing date.
- Map the allegation. Create a schedule showing tax period, return, transaction or credit involved, legal section, tax amount, interest, penalty and evidence relied on.
- Read the detailed notice, not only its summary. Rule 142 of the CGST Rules refers to DRC-01 for a summary of a specified notice and DRC-02 for a statement covering additional periods on the same grounds. A summary is not a substitute for the factual and arithmetic details.
- Check jurisdiction and tax head. Confirm whether the proceeding concerns central GST, state GST, Union Territory GST or an integrated-tax component, and whether the officer issuing it has jurisdiction over the registration and period.
- Reconcile to your books. Match the demand to returns, sales and purchase registers, invoice-level data, credit ledgers, payment challans and previous replies. Mark amounts already paid or already adjudicated.
- Decide whether a hearing is needed. Make a written hearing request if oral clarification, disputed evidence or a complex reconciliation makes it useful, and retain proof of delivery.
How to test the tax and interest calculation
Tax amount
Reperform the officer’s calculation from source records. Separate taxable value, rate, tax head, period and transaction. Identify whether the notice has treated a gross figure as taxable value, counted the same invoice twice, ignored a credit note, or applied a rate to a period in which it did not apply. Reconcile the result to the return and to payments credited in the electronic liability register.
Interest
Interest is linked to section 50, but a single universal rate or formula cannot be safely stated from the available statutory text. The applicable notified rate, tax or credit category, due date, payment date, return filing chronology and any statutory amendment all matter. Ask the officer to show the principal, start date, end date, rate changes and daily or period calculation. Recalculate each tax head independently and identify payments that should reduce the outstanding principal.
Supporting schedule
| Column | What to enter |
|---|---|
| Period and issue | Financial year, return period, invoice or credit category. |
| Officer’s figure | Tax, interest and penalty exactly as stated. |
| Your verified figure | Amount supported by books and the governing provision. |
| Difference | Arithmetic, classification, duplicate, payment or limitation difference. |
| Evidence reference | File name, page number, return ARN, challan or ledger entry. |
Payment options and their effect on penalty
Payment can reduce exposure, but only when the correct statutory route, amount and deadline are satisfied. Compare the alternatives before paying because a payment route may conclude proceedings for the covered amount and affect the ability to contest it.
| Stage | Section 73 provisions in the retrieved text | Section 74 provisions in the retrieved text | Action and proof |
|---|---|---|---|
| Before notice | Payment of tax and interest before notice can prevent a notice for the amount paid. | A pre-notice route involves tax, interest and a 15% penalty. | Confirm the amount covers the relevant issue and report payment through the prescribed process. |
| After notice, before order | Payment of tax and interest within 30 days of the show-cause notice generally concludes proceedings for that notice without penalty. | Payment within 30 days after notice uses a 25% penalty route, subject to statutory conditions. | Use the notice communication date, pay the full covered amount and retain the electronic acknowledgement. |
| After order | The retrieved section 73 text contains its own payment consequences; check the exact order and governing version. | Payment within 30 days after communication of the order uses a 50% penalty route for deemed conclusion, subject to the statutory conditions. | Calculate from communication of the order, not merely its signing date, and verify that no appeal or other condition is breached. |
Rule 142 refers to DRC-03 for payment intimation, DRC-04 for acknowledgement and DRC-05 for conclusion in specified cases. A bank payment or challan alone is not enough if the rule requires an electronic intimation or acknowledgement. Download each form, response and portal status.
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Before choosing settlement, compare six points: the tax period and governing version; whether fraud or suppression is actually alleged; the procedural stage; the amount and timing of payment; the resulting penalty; and whether the payment concludes the proceeding or leaves a right to contest.
Penalty exposure under sections 73 and 74
For the retrieved section 73 text, the adjudicated penalty is the higher of 10% of the tax or ₹10,000, subject to the provision’s terms. The early-payment window can remove the penalty for the notice. Section 74 is framed around a penalty equivalent to the tax, with the 15%, 25% and 50% reduced-penalty routes described above when their conditions and deadlines are met.
Do not copy a percentage into a payment instruction without checking the tax period, amendment, full-payment requirement and any exception in the notice. If the factual basis for fraud or suppression fails, section 75(2) can move the determination to the section 73 route, but that change follows the appellate or judicial finding; it is not an automatic assumption at the reply stage.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Procedural safeguards and writing the reply
Section 75 requires a hearing when the taxpayer requests one in writing or when an adverse decision is contemplated. The Act states: “An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.” Put the request in the reply and repeat it in a separate portal submission if the system provides that option.
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Use an allegation-by-allegation format:
- Quote or identify the notice paragraph and the tax period.
- State whether the fact, classification, amount or legal basis is admitted, partly admitted or denied.
- Explain the reconciliation in plain language and show the calculation.
- Attach an indexed evidence bundle with page references.
- State any amount voluntarily paid, the date, form number and acknowledgement.
- Request deletion or correction of unsupported tax, interest and penalty, and request a hearing.
Section 75(7) limits the final order: “The amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice and no demand shall be confirmed on the grounds other than the grounds specified in the notice.” Compare the order line by line with the notice. If the order adds a new ground, exceeds the notified amount or ignores a material submission, record that defect immediately for review or appeal.
How to appeal a GST demand order
Section 107 generally gives an aggrieved person three months from communication of the adjudicating authority’s decision or order to appeal to the Appellate Authority. The statute also provides a pre-deposit framework: pay admitted amounts and the prescribed percentage of the remaining tax in dispute, subject to the exact statutory conditions. The applicable CGST or SGST route, form, fee and portal steps must be checked for the order.
- Identify the communication date from the portal record, email or other legally recognised service evidence.
- Read the order’s findings, confirmed tax, interest and penalty, and compare them with the notice and your reply.
- Separate admitted and disputed amounts; calculate the statutory pre-deposit using the current provision.
- Prepare the prescribed appeal form, statement of facts, grounds, order copy, evidence, payment proof and authorisation documents.
- File electronically where required and save the acknowledgement, appeal number and uploaded files.
- If filing late, include the sufficient-cause explanation and supporting evidence. Condonation is limited by the statute, so do not assume that a late filing will be accepted.
Do not calculate the appeal deadline from the date printed in the order alone. Communication, portal access and proof of service may determine when the period starts. Interest and penalty should be recalculated if the tax amount changes on appeal or court review.
Section 128A relief for certain older section 73 cases
CBIC Circular 238/32/2024-GST describes a bounded section 128A relief route for specified section 73 demands relating to financial years 2017-18, 2018-19 and 2019-20. The circular addresses application forms and situations such as withdrawal of certain pending appeals or writs. Eligibility depends on the statutory and procedural conditions for the individual case.
Do these 3 things before closing this tab:
1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsThis is not a blanket waiver of GST interest or penalties. Check whether the demand is a qualifying section 73 matter, whether the required tax payment and application steps have been completed, and whether a pending appeal or writ must be withdrawn. Confirm later procedural directions before acting.
Records to preserve
- Original notice, annexures, DRC-01 or DRC-02 summary and every subsequent communication.
- Portal download timestamps, email headers, service proof and filing acknowledgements.
- Returns, annual returns, electronic liability and credit ledgers, challans and payment references.
- Invoice registers, tax invoices, credit notes, contracts, e-way bills and delivery evidence.
- Input-tax-credit reconciliations, supplier communications and explanations for mismatches.
- Calculations showing tax, interest and penalty by period, tax head and payment date.
- The signed reply, hearing request, written submissions, hearing minutes and final order.
Keep an indexed, read-only copy of the complete file. A later appeal may depend on proving not only what was submitted, but when and how it was communicated.
When professional review is prudent
Obtain GST counsel or a qualified tax professional when the notice alleges fraud or suppression, covers several years, involves large or disputed input tax credit, raises limitation or jurisdiction issues, or arrives close to a payment or appeal deadline. A review should test the governing statutory version, limitation computation, interest schedule, evidence and pre-deposit—not merely format the reply.
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