Demand and Recovery of Tax under GST

Understand Demand and Recovery of Tax

Key rules to remember

Section 73 notice: time limit

Notice ≥ 3 months before the order deadline; order within 3 years from the due date of the annual return for the relevant financial year (or from the date of erroneous refund)

Applies to non-fraud cases for periods up to FY 2023-24. Count the 3 years from the annual return due date, not from the end of the year.

Section 73 penalty on order

Penalty = 10% of tax or ₹10,000, whichever is higher

Charged in the order under Section 73(9), along with tax and interest under Section 50.

Section 73 no-penalty route

Pay tax + interest within 30 days of the show cause notice → no penalty; proceedings deemed concluded

Penalty still applies if self-assessed tax or tax collected was not paid within 30 days from its due date of payment (Section 73(11)), even if you pay within 30 days of the notice.

Section 73 voluntary payment

Pay tax + interest before notice, on own or officer's ascertainment, and inform the officer in writing

The officer shall not serve notice for the tax so paid or any penalty on it, subject to Section 73(11). If the payment falls short, notice can be issued for the shortfall.

Section 74 notice: time limit

Notice ≥ 6 months before the order deadline; order within 5 years from the due date of the annual return (or from the date of erroneous refund)

Applies to fraud, wilful misstatement or suppression cases for periods up to FY 2023-24.

Section 74 penalty ladder

Before notice: 15% of tax | Within 30 days of notice: 25% of tax | Within 30 days of order: 50% of tax | Order after contest: penalty = 100% of tax

In each case, tax and interest under Section 50 are also paid. The 100% penalty is the penalty equivalent to the tax specified in the notice.

Statement for other periods

Section 73(3) and (4): a statement for other periods is deemed to be a notice under Section 73(1) if the grounds are the same as in the earlier notice | Section 74(3) and (4): a statement for other periods is deemed to be a notice under Section 73(1) of the Act if the grounds, except the ground of fraud, wilful misstatement or suppression of facts to evade tax, are the same as in the earlier notice

Under Section 73, the grounds must be the same as in the earlier notice. Under Section 74, the fraud, wilful misstatement or suppression ground need not be the same, but the other grounds must be.

Section 79 modes of recovery

Deduction from money owed to defaulter | Detention and sale of goods | Recovery from third person | Recovery through court or Collector as arrears of land revenue | Magistrate proceedings

Plain-words list. The officer uses these once the amount is due under an order. Section 79 is outside the official text supplied for this page (only Sections 73 and 74), so check the list against the full Act before you quote it.

How to solve Demand and Recovery of Tax questions

1. 1Fix the period. If the tax relates to FY 2023-24 or earlier, Sections 73 and 74 apply. For later periods, say that the separate provision (Section 74A) governs.
2. 2Find the reason for the default. Look for words like fraud, wilful misstatement, suppression, concealed, forged invoices. If present, it is Section 74. If it is a mistake, a bona fide dispute or a calculation error, it is Section 73.
3. 3State the notice rule: show cause notice with tax, interest under Section 50 and penalty, served on the person chargeable.
4. 4Compute the time limits. Take the due date of the annual return, add 3 years (Section 73) or 5 years (Section 74) for the order deadline, and subtract 3 months or 6 months for the last date of notice.
5. 5List the options available to the taxpayer in order: pay before notice, pay within 30 days of notice, pay within 30 days of order (Section 74 only), or contest and reply.
6. 6Compute the amounts. Tax plus interest, then the penalty percentage that fits the stage. Show each figure separately.
7. 7If the question asks about collection, name the modes of recovery under Section 79 and the supporting provisions such as the order payable period, instalments, first charge on property and provisional attachment.
8. 8Close with a one-line conclusion that answers the exact question asked, such as the section, amount payable or last date.

Quickest way: Fraud or not, then stage of payment

Common mistakes in Demand and Recovery of Tax

• Applying Section 73 or 74 to every period without checking the year.

  Students memorise the sections without noting that the text applies to tax pertaining to the period up to FY 2023-24.

  Fix: Write the financial year first in every answer. For later periods, mention that a separate provision (Section 74A) applies.

• Counting the 3-year or 5-year limit from the end of the financial year.

  It feels natural to count from the year in which the default happened.

  Fix: Count from the due date of furnishing the annual return for that financial year, or from the date of erroneous refund.

• Mixing up the notice gap with the order limit.

  Both involve months and years in the same sub-section family.

  Fix: Remember: notice must be issued at least 3 months (Section 73) or 6 months (Section 74) before the order deadline. The order deadline is 3 or 5 years.

• Saying that no penalty applies in Section 74 if tax is paid in 30 days.

  Students carry over the Section 73 no-penalty rule.

  Fix: Under Section 74, paying within 30 days of notice still needs a 25% penalty. Only then are proceedings on that notice concluded.

• Forgetting interest under Section 50 in the amount payable.

  Focus stays on the penalty percentage.

  Fix: Write the formula as tax + interest + penalty every time, and show interest as its own line.

• Assuming concluded proceedings also end prosecution.

  The words 'all proceedings deemed concluded' sound complete.

  Fix: Explanation 1 says those words do not include proceedings under Section 132, which deals with offences and prosecution.

Worked examples