UNDERSTANDING THE NOTICE
What Is a Show Cause Notice
Under Section 73 or 74?
A Show Cause Notice under Sections 73 and 74 of the CGST Act is the formal instrument through which the GST department demands tax it believes has been short paid, not paid, or wrongly refunded — or challenges Input Tax Credit it considers to have been wrongly availed or utilised. The SCN initiates a quasi-judicial proceeding with defined timelines, hearing rights, and appellate remedies.
The critical distinction between Section 73 and Section 74 lies in the allegation of fraud or wilful misstatement. Section 73 applies to cases of genuine error, omission, or difference in legal interpretation — where there is no allegation of fraud. Section 74 applies where the department alleges fraud, suppression of facts, or wilful misstatement — and carries significantly harsher consequences including higher penalties and a longer limitation period.
The Section You Are Noticed Under Determines Everything
Being noticed under Section 74 when the facts support only Section 73 is a common departmental overreach — and it is legally challengeable. A Section 74 notice requires specific allegations of fraud or suppression in the notice itself. Where these allegations are absent or unsupported, the notice is vulnerable to challenge on the ground that the jurisdictional precondition under Section 74 is not satisfied. Vertax Partners evaluates every SCN for jurisdictional validity before drafting the reply — and challenges Section 74 invocations where the facts do not support the fraud allegation.
SECTION 73 vs SECTION 74
Understanding the Critical
Difference Between the Two Sections
NO FRAUD ALLEGED
Section 73 — Bonafide Cases
FRAUD / SUPPRESSION ALLEGED
Section 74 — Fraud / Wilful Misstatement
APPLIES WHERE
Tax short paid / not paid / ITC wrongly availed
Due to any reason other than fraud, wilful misstatement, or suppression
APPLIES WHERE
Tax evaded by fraud, wilful misstatement
Or suppression of facts to evade tax — specific allegation mandatory in the SCN itself
LIMITATION PERIOD
3 Years
From due date of annual return for the financial year to which the short payment relates
LIMITATION PERIOD
5 Years
Extended limitation period — applicable only where fraud allegation is specifically made and supported
MINIMUM PENALTY
10% of tax
Subject to a minimum of ₹10,000 — applicable after adjudication order
MINIMUM PENALTY
100% of tax
Penalty equal to the full tax amount — significantly higher than Section 73
EARLY PAYMENT BENEFIT
Pay 10% penalty only
If tax + interest paid within 30 days of SCN — only 10% penalty applicable under Section 73(5)
EARLY PAYMENT BENEFIT
Pay 15% penalty only
If tax + interest paid before SCN issuance — 15% penalty under Section 74(5). After SCN — 25% if paid within 30 days
ADJUDICATION TIMELINE
Order within 3 years
From due date of annual return — the adjudicating authority must pass the order within this period
ADJUDICATION TIMELINE
Order within 5 years
Extended period — applicable to fraud cases where the 5-year limitation for SCN issuance applies
PENALTY MANAGEMENT
The Penalty Reduction Ladder —
Timing Determines What You Pay
The CGST Act builds in statutory penalty reduction windows at each stage of the SCN process. Knowing — and acting within — each window is the most direct way to reduce financial exposure. Vertax Partners maps your position on this ladder on Day 1 of engagement.
Before SCN Issuance
Section 74(5)
Tax + interest paid voluntarily before the Show Cause Notice is issued — fraud cases only. Department must accept and close proceedings.
15%
of tax demand
Within 30 Days of SCN
Section 73(5) / 74(5)
Tax + interest paid within 30 days of SCN receipt. Under Section 73(5) — 10% penalty. Under Section 74(8) — 25% penalty if paid within 30 days of SCN.
10–25%
of tax demand
Before Order — Sec 74(9)
Section 74(9)
In fraud cases — tax + interest paid after 30 days of SCN but before the adjudication order is passed. Proceedings deemed concluded.
50%
of tax demand
After Adjudication Order
Section 73 / 74
Tax + interest + penalty as per the adjudication order. Section 73 — 10% penalty. Section 74 — 100% penalty on adjudicated demand.
10–100%
of tax demand
Uncontested / Default
Ex-parte order
No reply filed. Ex-parte order passed. Full demand confirmed with maximum penalty and interest — no reduction benefit available.
100%
+ interest
LEGAL FRAMEWORK
Key Statutory Provisions
Governing SCN Proceedings
SECTION 73(1) — CGST ACT, 2017 — SHOW CAUSE NOTICE (NON-FRAUD)
"Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, he shall serve notice on the defaulting taxable person requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act."
SECTION 74(1) — CGST ACT, 2017 — SHOW CAUSE NOTICE (FRAUD)
"Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful misstatement or suppression of facts to evade tax, he shall serve notice on the taxable person requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice."
SECTION 75(4) — CGST ACT, 2017 — MANDATORY PERSONAL HEARING
"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."
SCN PROCEEDING TIMELINE
How an SCN Proceeding
Unfolds — Stage by Stage
STAGE 1
SCN Issued in Writing
The proper officer issues the Show Cause Notice specifying the alleged tax short payment, period involved, ITC wrongly availed, and the proposed demand amount with interest. The notice must specify the section under which it is issued — Sec 73 or Sec 74.
STAGE 2 — CRITICAL WINDOW
Reply Filing — 30 Days from Receipt
The registered person must file a written reply to the SCN within the time specified in the notice — typically 30 days. This reply is the most critical document in the entire proceeding. A comprehensive, statute-backed reply sets the foundation for the personal hearing and any subsequent appeal.
STAGE 3
Personal Hearing — Section 75(4)
The assessee or authorised representative appears before the adjudicating authority. Oral arguments are made on each ground in the SCN reply. Additional documentary evidence is submitted. The officer may pass the order at this stage or thereafter.
STAGE 4
Adjudication Order — Section 73/74
The proper officer passes the adjudication order confirming, modifying, or dropping the demand. The order must be a speaking order — reasoning must be provided. A non-speaking order or an order ignoring the reply is legally vulnerable to appeal.
STAGE 5 — IF DEMAND CONFIRMED
Appeal to Appellate Authority — Section 107
Where the adjudication order confirms the demand, an appeal lies to the Appellate Authority (Commissioner — Appeals) under Section 107 within 3 months of the order. Pre-deposit of 10% of disputed tax is required for filing the appeal — Vertax Partners handles the complete appellate process.
OUR DEFENCE APPROACH
How Vertax Partners Defends
Every SCN Mandate
01
Jurisdictional Challenge
We first assess whether the notice was issued by the competent officer, within the limitation period, and under the correct section. Section 74 invocations without specific fraud allegations are challenged on jurisdictional grounds — often resulting in the notice being reduced to Section 73 or dropped entirely.
Limitation PeriodSec 73 vs 74Competence of Officer
02
Demand Quantum Rebuttal
The proposed demand amount in the SCN is computed by the department — often using estimated or incorrect figures. We prepare a counter-computation based on actual books and GSTR data, reducing the defensible demand quantum to the minimum legally supportable figure.
GSTR ReconciliationDemand RecomputationBooks vs Returns
Every allegation in the SCN is countered with the precise statutory provision, CBIC circular, or judicial precedent that establishes the assessee's legal position. We do not concede any ground without a full legal evaluation — including ITC eligibility, HSN classification, valuation, and place of supply disputes.
Bare ActCBIC CircularsHigh Court Orders
04
Penalty Minimisation Strategy
Where liability on some grounds is inescapable, we structure the payment and concession strategy to utilise the penalty reduction windows under Section 73(5) and 74(5) — ensuring you pay the minimum penalty the law allows on the minimum defensible demand.
Sec 73(5) — 10%Sec 74(5) — 15%Voluntary Payment
OUR PROCESS
How We Handle Your
SCN Mandate
01
SCN Analysis & Risk Map
Jurisdiction check, section validity, limitation period verification. Ground-wise risk assessment and demand quantum review.
DAY 102
Counter-Computation
Recomputation of the alleged tax demand using actual books, GSTR data, and ledger records — to establish the minimum defensible liability figure.
DAY 2–503
Reply Strategy & Drafting
Para-wise SCN reply with statutory extracts, factual rebuttal, judicial precedents, and annexure-wise documentary evidence for every allegation.
DAY 5–2004
Personal Hearing Representation
Appearance before the adjudicating authority. Oral submissions on each contested ground. Additional evidence submission where required.
ON DATE05
Order Review & Next Steps
Analysis of adjudication order. If demand confirmed — evaluation of appeal viability, pre-deposit requirement, and Section 107 appeal filing within limitation.
POST ORDER06
Appeal — If Escalated
Filing of appeal before Appellate Authority (Commissioner — Appeals) under Section 107 within 3 months. 10% pre-deposit management and complete appellate representation.
IF REQUIREDFREQUENTLY ASKED
Questions Businesses Ask
When an SCN Arrives
We received a Section 74 notice alleging fraud — but we have committed no fraud. What are our options?
A Section 74 notice requires the proper officer to specifically allege fraud, wilful misstatement, or suppression of facts in the body of the notice — and these allegations must be supported by specific facts and materials. A notice that merely reproduces the statutory language of Section 74 without citing specific fraudulent conduct is legally deficient and can be challenged. Vertax Partners evaluates every Section 74 SCN for this jurisdictional deficiency — and where the notice fails to make specific fraud allegations, the reply is structured to establish that Section 73, not Section 74, is the applicable provision. This is not merely a technical argument — it reduces the applicable penalty from 100% to 10%.
The demand in the SCN appears to be computed incorrectly — the amount is significantly overstated. Does the reply need to address this?
Absolutely — and this is one of the most important elements of the SCN reply. The department's demand computation is typically based on return data discrepancies or estimated figures — and very often overstates the actual liability. The reply must include a counter-computation based on actual books, reconciled GSTR data, and ITC ledger records — presenting the correct and defensible demand figure. Accepting the department's quantum without rebuttal concedes the entire amount as the adjudication base, which is the most avoidable and costly mistake in SCN proceedings.
Can we pay the tax and settle the SCN without going through a full adjudication?
Yes — and this is often the correct strategy on specific grounds where liability is clear and the quantum is not in dispute. Section 73(5) allows payment of tax + interest within 30 days of the SCN with a reduced penalty of 10%, upon which proceedings for that ground are deemed concluded. Section 74(5) allows payment before the SCN with a 15% penalty. However, this strategy must be applied selectively — only on grounds where liability is genuinely inescapable. Paying on grounds where a strong legal defence exists amounts to a voluntary concession that cannot be retracted. Vertax Partners maps each SCN ground into contest-or-settle categories before any payment is made.
The adjudication order confirmed the demand — is it too late to contest?
Not at all. Section 107 of the CGST Act provides a right of appeal to the Appellate Authority (Commissioner — Appeals) against any adjudication order within 3 months of its communication. The appeal requires a pre-deposit of 10% of the disputed tax amount — the remaining 90% is stayed during the appeal. Where the adjudicating authority has ignored the reply, failed to provide adequate reasoning, or passed a non-speaking order, these are additional grounds of challenge before the Appellate Authority. Vertax Partners handles the complete appellate process including pre-deposit management, appeal drafting, and representation.