CGST Act 2017 Section 73: Demand Not Involving Fraud (2026)
What Section 73 of the CGST Act, 2017 does: it is the demand provision for tax short paid or input tax credit wrongly taken for ordinary reasons, not fraud. This explains the notice, the time limit, the lighter penalty, and how it differs from Section 74. Last verified October 2026.
Explainer · GST · CGST Act
Section 73 of the CGST Act, 2017 is the provision the GST department uses when tax has been short paid or input tax credit has been wrongly taken for an honest reason, such as a mistake or a difference in understanding, and not because of fraud. It carries a shorter time limit and a much lighter penalty than its stricter cousin, Section 74. If you have received an ASMT-10 scrutiny notice or a DRC-01 show cause notice that cites Section 73, this explainer tells you what it means, how long the department has, what you must pay, and what has changed for recent years. Last verified October 2026.
- What it is: Section 73 recovers tax short paid or credit wrongly taken for reasons other than fraud.
- Time limit: order within 3 years of the annual return due date, with the notice at least 3 months earlier.
- Penalty: nil if you pay before or within 30 days of the notice; otherwise 10% of the tax or Rs 10,000.
- Recent years: for FY 2024-25 onwards the common Section 74A applies; Section 73 covers periods up to FY 2023-24.
01What Section 73 covers
Section 73 lets a proper officer recover tax in four situations, as long as there is no fraud, wilful misstatement or suppression of facts:
- tax that was not paid;
- tax that was short paid;
- a refund that was given by mistake; and
- input tax credit that was wrongly availed or wrongly utilised.
The officer begins by issuing a show cause notice, usually in Form GST DRC-01, that sets out the tax demanded and the reasons. You get a chance to reply and be heard before any order is passed. The order itself is passed in Form GST DRC-07.
02When Section 73 is used
Section 73 is the route for the ordinary, no-blame kind of shortfall. Common triggers are a mismatch between your GSTR-1 and GSTR-3B, credit claimed that does not match GSTR-2B, a classification or rate difference, or a genuine calculation error picked up during scrutiny.
The dividing line
Section 73 applies when there is no fraud, no wilful misstatement and no suppression of facts. The moment the department alleges any of those, it must move to Section 74 instead, which carries a longer time limit and a heavier penalty.
A scrutiny often starts with a Form GST ASMT-10 notice pointing out discrepancies. If your reply does not satisfy the officer, a Section 73 demand can follow. See the GST ASMT-10 scrutiny notice and the DRC-01 show cause notice for how those forms work.
03Time limit for the notice and order
Section 73 has a strict timetable tied to the annual return for the financial year in question.
- The order under Section 73 must be passed within three years from the due date of the annual return for that financial year (or from the date of the erroneous refund).
- The show cause notice must be issued at least three months before that three year deadline, so in practice within about two years and nine months.
These outer limits matter. A notice or an order passed after the time runs out can be challenged as barred by limitation.
04Tax, interest and penalty
Because Section 73 assumes honesty, the penalty is light and you can often close the matter with no penalty at all if you act quickly.
| When you pay | What is payable |
|---|---|
| Before the show cause notice | Tax plus interest, and no penalty |
| Within 30 days of the show cause notice | Tax plus interest, and no penalty |
| After the order is passed | Tax, interest, and penalty of 10% of the tax or Rs 10,000, whichever is higher |
You usually pay through Form GST DRC-03. If you pay the tax and interest voluntarily before the notice and inform the officer, the proceedings are treated as closed. See how DRC-03 voluntary payment works.
05Section 73 against Section 74
The two provisions sit side by side. The facts of your case decide which one applies.
| Point | Section 73 (no fraud) | Section 74 (fraud) |
|---|---|---|
| Reason for the shortfall | Honest error, no fraud | Fraud, wilful misstatement or suppression |
| Order time limit | 3 years from annual return due date | 5 years from annual return due date |
| Highest penalty | 10% of tax or Rs 10,000 | Up to 100% of tax |
| Escape by early payment | Nil penalty if paid before or within 30 days of notice | Reduced penalty, never nil |
For the stricter fraud route, see Section 74 of the CGST Act.
06What changed from FY 2024-25
From the financial year 2024-25 onwards, the demand process is governed by a new Section 74A, inserted by the Finance (No. 2) Act, 2024 and brought into force from 1 November 2024. Section 74A sets a single time limit and a common procedure for both fraud and non-fraud cases, although the penalty still depends on whether fraud is involved.
Section 73 and Section 74 continue to govern demands for the periods from July 2017 up to the financial year 2023-24. So for older years you will still see notices under Section 73.
07Where Claw fits
Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.
Whether a Section 73 demand holds up often turns on how courts have treated a similar mismatch or credit dispute. Claw lets you search more than 30 crore judgments and orders, with results in under 5 seconds, so you can see how High Courts and tribunals have read Section 73 on limitation, on the GSTR-1 against GSTR-3B mismatch, and on when a matter should have been under Section 74 instead. Reported authority runs from Supreme Court rulings of 1950 and High Court rulings of 1990 to recent orders. You can also track a live GST matter, with its notices, orders and hearings, by party name across 9,102 courts, benches and forums. Claw does not use the documents you upload to train its AI models.
Create a FREE Claw account to track your GST notices and orders, and use case search across Indian courts to find how Section 73 has been applied. For ongoing files, many teams use GST litigation and notice tracking.
08Sources and further reading
- India Code (CGST Act, 2017 bare text): indiacode.nic.in
- CBIC GST (official GST portal and law): cbic-gst.gov.in
- GST Council: gstcouncil.gov.in
- Claw: clawlaw.in
This explainer is general information, not legal or tax advice. GST law changes often through amendments, notifications and circulars, so check the current text and take advice from a professional before you act.
09Frequently asked questions
What is Section 73 of the CGST Act?
Section 73 lets a GST officer recover tax that was not paid, short paid, wrongly refunded, or input tax credit that was wrongly availed, for any reason other than fraud, wilful misstatement or suppression of facts. It carries a shorter time limit and a lighter penalty than Section 74.
What is the time limit under Section 73?
The order must be passed within three years from the due date of the annual return for that financial year, and the show cause notice must come at least three months before that, so about two years and nine months.
What penalty applies under Section 73?
There is no penalty if you pay the tax and interest before the notice or within 30 days of it. If an order is passed, the penalty is 10% of the tax or Rs 10,000, whichever is higher.
How is Section 73 different from Section 74?
Section 73 is for honest errors with no fraud. Section 74 is for fraud, wilful misstatement or suppression and carries a five year limit and up to 100% penalty. The facts decide which one the department can use.
Does Section 73 still apply for recent years?
Section 73 applies for periods from July 2017 up to the financial year 2023-24. For 2024-25 onwards, a new common provision, Section 74A, governs demands whether or not fraud is involved.
Can I close a Section 73 notice by paying early?
Yes. If you pay the tax with interest before the show cause notice or within 30 days of it, no penalty is charged and the proceedings are treated as concluded. Payment is usually made through Form GST DRC-03.