GST Notices under Section 74A: Timelines, Penalties and How to Respond

The Finance Act, 2024 changed how GST demands are raised. For periods up to FY 2023-24, demands are raised under Sections 73 (no fraud) and 74 (fraud or suppression), which have different time limits. For FY 2024-25 onwards, a single Section 74A applies.

Section 74A at a glance

Point	Without fraud / suppression	With fraud / suppression
Show cause notice	Within 42 months from the due date of the annual return (or the date of erroneous refund)	Same
Order	Within 12 months of the notice (extendable by 6 months)	Same
Penalty	10% of tax or ₹10,000, whichever is higher	100% of tax
Reduced penalty on early payment	Nil penalty if tax and interest are paid within 60 days of the notice	15% / 25% / 50% depending on the stage of payment

Because the time limit is now the same for both categories, the department's choice to invoke fraud matters mainly for the penalty. The burden is on the department to establish fraud, wilful misstatement or suppression.

Stages of a typical GST dispute

1. Scrutiny of returns (ASMT-10). The officer points out discrepancies. Reply in ASMT-11 within 30 days. A good reply here often closes the matter.
2. Audit (ADT-01 / ADT-02). A departmental audit of the books.
3. Pre-show cause consultation (DRC-01A). An intimation of the proposed demand, with an option to pay or respond.
4. Show cause notice (DRC-01). The formal demand, with the grounds.
5. Order (DRC-07). After the reply and a personal hearing.
6. Appeal (APL-01) to the Appellate Authority within three months, with a pre-deposit of 10% of the disputed tax.
7. GST Appellate Tribunal – the Tribunal has been constituted and has begun functioning, ending the long gap in which taxpayers had to approach High Courts directly. A further pre-deposit applies.

The amnesty for older years

Section 128A waived interest and penalty for demands for FY 2017-18 to 2019-20 raised under Section 73, where the full tax was paid by the notified date. If you have such demands and have not taken this route, check whether any window remains open.

How to respond effectively

• Do not ignore ASMT-10 or DRC-01A. Early-stage replies are cheaper and more likely to succeed.
• Reconcile first. Many demands come from GSTR-1 vs GSTR-3B timing differences, ITC claimed in a different year, or credit notes. Prepare a month-wise reconciliation.
• Check limitation and jurisdiction. Notices issued beyond the time limit, or by an officer without jurisdiction, can be challenged.
• Answer every allegation separately, with evidence: invoices, e-way bills, payment proof, transport documents and the supplier's return status.
• Ask for a personal hearing. It is a statutory right before an adverse order.
• Keep the DIN and all acknowledgements. Communications without a valid DIN can be challenged.

Common issues to fix proactively

• ITC on invoices from suppliers who have not filed returns or whose registration is cancelled
• ITC on blocked items, such as motor vehicles, food and beverages, and works contracts for immovable property
• mismatch between e-way bills and outward supplies
• RCM liability on legal services, GTA, renting by unregistered persons and import of services
• difference between GST turnover and income tax / financial statement turnover

The information in this article reflects the law as on the date of publication and is for general guidance only.