Section 73 of CGST Act: Applicability, Time Limit and Penalty

Since the introduction of GST in India, Section 73 of the CGST Act was used to determine the GST demand in genuine cases where no ulterior motive is involved. However, some benchmark changes have been made by the FY 2024-25 budget on recommendation of the 53rd GST council meeting. In this blog, we discuss, the changes made in Section 73 of the CGST Act and how it can benefit the taxpayers.

What is Section 73 of the CGST Act?

Section 73 of the CGST Act covers the procedure for the determination of GST demand in general cases where any ulterior motive (involves fraud, wilful misstatement, or suppression of facts)  is not involved, if:

• Tax is not paid duly
• Tax paid is short of the actual liability
• Tax is erroneously refunded
• Input Tax Credit (ITC) under Section 73 of the CGST Act 2017 is wrongly availed or utilised

Click here to learn about Section 73 of the CGST Act in detail.

Applicability of Section 73 in FY 2024-25 & Onwards

The FY 2024-25 has seen major changes in Section 73 of the CGST Act. Two big events have changed how your business will be affected by the provisions of Section 73. Let's look at these major events and the changes made therein:

Changes Recommended by the 53rd GST Council Meeting

First, let’s understand the changes recommended in the 53rd GST Council meeting:

• Setting up a maximum time limit for issuing demand notices.
• Reduce the burden of penalty on taxpayers who pay tax and interest within 60 days of the notice.

Changes Made by the Financial Budget 2024-25

In light of the recommendations of the 53rd GST Council Meeting, the Finance Minister through the Finance Bill 2024-25 added a new Section 74A to cover the provisions of Section 73 of the CGST Act and Section 74. So, here are the changes you will see from FY 2024-25:

• Section 73 is still applicable for GST demands up to the FY 2023-24.
• Section 74A will be applicable from FY 2024-25 onwards. The key changes that Section 74A has made to Section 73 of the CGST Act are:

Section 73 of the CGST Act Time Limit

Section 73 provided that the demand notice should be served at least 3 months before issuing the final order. The time limits under Section 73 of the CGST Act were not clear, leading to a lot of confusion among the taxpayers. Moreover, there was no time limit on the period for completion of the demand procedure.

The newly added Section 74A prescribes clear time limits as follows:

• The notice should be issued within 42 days of:
  • the last day of filing the annual return or 
  • The erroneous refund
• The final order should be issued within 12 months of the issue of notice.
• This period can be extended for a maximum of 6 months by a Joint Commissioner, or other higher-ranked officer.

The Demand and Recovery Certificate (DRC) series of forms is used for the demand procedure u/s 73 of the CGST Act. Click here to learn more about the DRC forms. To learn about the procedure of issuing a demand notice, visit this link.

How to Reply to a Demand Notice U/s 73 of the CGST Act?

As we continue with the DRC series of forms, you can provide the intimation of payment to the proper officer u/s 73 of the CGST Act using form DRC-03. However, if you wish to reply to the demand notice, you can use Form DRC-06. 

You can respond to a demand notice u/s 73 of the CGST Act in the following ways:

• The demand is correct and the payment is pending.
• The demand is correct and the payment is already done.
• The demand is not fully correct.
• The demand is partially correct.

To learn how to submit the ideal response, follow the steps in this blog. 

Suppose you disagree with the demand order issued by the GST authority. What will you do in that case? You can file an appeal against the demand order u/s 73 of the CGST Act. Here’s your guide to appeal against a demand order.

Section 73 of the CGST Act Penalty

One of the main reasons for introducing Section 74A in place of the erstwhile Section 73 of the CGST Act, was to provide relief to taxpayers from penalty in general cases. Let’s compare the provisions of the penalty in detail.

Click here to learn more about penalty u/s 73 of the CGST Act. Another important concept to understand here is the conditions to claim Input Tax Credit so that it doesn’t violate the provisions of Section 73. Learn how to claim ITC here.