Last reviewed: 26 August 2026. Two things changed the GST notice landscape this year: every fresh demand for FY 2024-25 onwards now runs through the newly merged Section 74A instead of the old 73/74 split, and the GST Appellate Tribunal (GSTAT) is finally hearing appeals — Principal Bench plus State Benches went live from 16 February 2026. Together they change how quickly a notice should be answered and where an unfavourable order actually goes next. This note sets out the current timelines, the penalty math at each stage, and the appeal route with numbers, so a notice on your desk right now can be triaged correctly rather than reflexively contested or reflexively paid.
Section 73, 74 and the new Section 74A — who applies where
For tax periods up to FY 2023-24, demands still travel under the old split: Section 73 for genuine errors (short payment, wrong ITC, no fraud alleged) and Section 74 for cases involving fraud, wilful misstatement or suppression, which carried steeper penalties and a longer limitation window. From FY 2024-25 onwards, both are replaced by a single Section 74A. The section no longer forks by case type at the notice stage — the officer builds the case and the "fraud vs non-fraud" character is determined on the facts, but the practical effect for a taxpayer is the same: which penalty table applies depends entirely on whether suppression or fraud is alleged, not on which section number appears on the notice.
| Period covered | Governing section | Character determined by |
|---|---|---|
| Up to FY 2023-24 | Section 73 (non-fraud) / Section 74 (fraud) | Section chosen by officer at notice stage |
| FY 2024-25 onwards | Section 74A (unified) | Fraud/non-fraud finding within the same section |
Timelines: notice, reply and order
Section 74A tightens and standardises the clock compared to the old provisions:
| Stage | Time limit |
|---|---|
| Show cause notice (Form DRC-01) | Within 42 months from the due date of the annual return for that year, or from the date of the erroneous refund |
| Reply to notice | As specified in the notice — usually 30 days, extendable on request; separately, the 60-day-from-notice window governs the penalty rate (see below) |
| Adjudication order | Within 12 months of notice issuance, extendable by up to 6 months by an officer of Joint Commissioner rank or above |
Reply on Form DRC-06 through the GST portal, annexing reconciliations, ledger extracts and any prior correspondence — a reply that only makes legal argument without addressing the officer's specific figures rarely moves the needle at the adjudication stage.
Penalty stages — the number that actually matters
The single biggest lever a taxpayer controls is timing. Under Section 74A:
| When tax + interest is paid | Non-fraud track | Fraud/suppression track |
|---|---|---|
| Before notice is issued | Nil penalty | 15% of tax |
| Within 60 days of notice | Nil penalty | 25% of tax |
| Within 60 days of the order | 10% of tax or ₹10,000, whichever is higher | 50% of tax |
| After 60 days of the order | 10% of tax or ₹10,000, whichever is higher | 100% of tax |
Interest runs separately under Section 50 — 18% p.a. on tax paid late in the ordinary course (Section 50(1)), rising to 24% p.a. where the demand is for input tax credit that was wrongly availed and utilised (Section 50(3)). On an old FY 2022-23 mismatch, interest alone can exceed the tax demanded — it is usually the number worth negotiating around first, since the penalty is often the smaller line item once 60-day payment is achieved.
Worked example 1: a routine ITC mismatch, non-fraud track
A Thane-based trading firm gets a DRC-01 on 15 September 2026 for ₹4,20,000 of ITC claimed on invoices where the supplier's GSTR-1 shows a mismatch — a classic non-fraud reconciliation gap, tax demanded ₹4,20,000.
- Interest at 18% p.a. from the original due date (roughly 14 months elapsed): approximately ₹88,200.
- Paid within 60 days of notice (by mid-November 2026): penalty nil. Total payable ≈ ₹5,08,200.
- Paid only after the order, say 4 months later: penalty at 10% of tax = ₹42,000, plus the extra interest that accrued in the interim. Total payable climbs past ₹5,60,000.
The 60-day window alone is worth roughly ₹42,000 here — reconciling and paying promptly, even under protest for the interest component, is usually the right call in a genuine mismatch case.
Worked example 2: fraud alleged, escalating cost of delay
An exporter is issued a DRC-01 alleging fabricated invoices to inflate ITC claims — tax demanded ₹18,00,000, fraud track applies.
- Settled before notice: penalty 15% = ₹2,70,000 (plus tax and interest).
- Settled within 60 days of the notice: penalty 25% = ₹4,50,000.
- Contested through adjudication, order confirmed, paid within 60 days of order: penalty 50% = ₹9,00,000.
- Paid beyond that: penalty 100% = ₹18,00,000 — effectively doubling the tax outflow.
On the fraud track the arithmetic argues strongly for an early, honest settlement wherever the underlying facts are genuinely against the taxpayer; where the fraud allegation itself is disputable, that is precisely the case worth taking to appeal rather than paying under the fraud-track penalty schedule.
First appeal: Commissioner (Appeals)
| Item | Position |
|---|---|
| Forum | Commissioner (Appeals), jurisdictional |
| Time limit | 3 months from communication of order, condonable by a further 1 month on sufficient cause |
| Pre-deposit | 10% of the disputed tax amount, capped at ₹25 crore each under CGST and SGST |
| Form | APL-01 on the GST portal |
Second appeal: GSTAT — now actually hearing matters
The GST Appellate Tribunal was on paper since the 2017 Act but had no functioning bench for years. That changed from 16 February 2026: the Principal Bench in New Delhi and State Benches across the country are hearing appeals, with hybrid physical-and-virtual proceedings.
| Item | Position |
|---|---|
| Time limit | 3 months from communication of the Commissioner (Appeals) order, extendable at GSTAT's discretion for sufficient cause |
| Pre-deposit | A further 10% of the tax remaining in dispute, capped at ₹20 crore each under CGST and SGST — cumulative pre-deposit across both appeals works out to roughly 20% of the original disputed tax |
| Penalty-only disputes | 10% of the penalty amount, no separate cap stated |
| Adjustment | Any deposit already made before a High Court during GSTAT's non-functional years is adjustable against the cumulative pre-deposit — it is not paid twice |
If you missed the backlog window: orders communicated before GSTAT became operational got a one-time catch-up window, originally to 30 June 2026 and extended once by the Ministry of Finance to 31 July 2026 to absorb the last-minute filing rush on the portal. That extended date has now passed. If a pre-GSTAT order was never appealed, the position is not automatically closed — a condonation application can still be made on sufficient cause — but it needs to go in without further delay, and the argument only gets harder the longer it waits.
Common mistakes we see on notice replies
- Replying with only a legal argument and no reconciliation — officers adjudicate on the numbers filed, not on submissions alone.
- Missing the 60-day-from-notice window by a few days while "finalising the reply" — the penalty tier changes at day 60 regardless of whether a reply is pending.
- Treating every notice as fraud-track by default out of caution — this sometimes leads to over-disclosure that invites the very characterisation being feared; get the classification right before deciding strategy.
- Filing the first appeal without recomputing the pre-deposit on the actual disputed amount — a wrong pre-deposit calculation can get an appeal treated as not properly filed.
- Not tracking limitation dates independently — portal reminders are not reliable, and the 3-month clock (plus condonation window) is unforgiving once it runs out.
Frequently asked questions
Is Section 73 still used for GST demand notices in FY 2026-27?
No, for tax periods from FY 2024-25 onwards, Sections 73 and 74 have been merged into the new Section 74A. Section 73 and 74 continue to apply only to demands relating to FY 2023-24 and earlier, since those assessment cycles were already underway when 74A took effect.
What is the difference between the non-fraud and fraud penalty track under Section 74A?
Both tracks sit inside the same section now; the officer decides which applies based on whether fraud, wilful misstatement or suppression of facts is alleged. Non-fraud cases carry no penalty if tax and interest are paid before or within 60 days of the notice, and 10% of tax (or ₹10,000, whichever is higher) if paid later. Fraud cases carry a graded penalty of 15%, 25%, 50% or 100% of tax depending on the stage at which payment is made.
How long does a taxpayer get to reply to a GST show cause notice?
The notice itself specifies the reply period, typically 30 days from issue, extendable on a reasoned request. The bigger number to track is the 60-day window from the date of the notice — paying tax and interest within that window keeps the penalty at nil even in a non-fraud Section 74A case.
What is the current pre-deposit for a GST appeal in 2026?
10% of the disputed tax for the first appeal to the Commissioner (Appeals), capped at ₹25 crore each under CGST and SGST, and a further 10% of the tax remaining in dispute for the second appeal to the GST Appellate Tribunal (GSTAT), capped at ₹20 crore each under CGST and SGST. Taken together the cumulative pre-deposit works out to roughly 20% of the original disputed tax.
Is GSTAT actually functioning now, and what if I missed the backlog appeal deadline?
Yes. The Principal Bench in New Delhi and State Benches across the country became operational from 16 February 2026 and are hearing matters, including through virtual hearings. The one-time window for appealing pre-GSTAT orders was originally 30 June 2026 and was extended once to 31 July 2026 by the Ministry of Finance; that extended date has since passed. If a backlog order was not appealed by then, get in touch immediately — a condonation application citing sufficient cause is the only route left, and delay narrows the argument.
What interest rate applies on a confirmed GST demand?
18% per annum under Section 50(1) on tax paid late in the ordinary course, and 24% per annum under Section 50(3) where input tax credit was wrongly availed and utilised. Interest runs from the original due date regardless of when the notice is issued, so it is usually the single largest component of an old demand.
Should every GST notice be contested, or is it sometimes better to just pay?
Not every notice is worth fighting. Where the department's arithmetic is correct and no genuine dispute exists, paying within 60 days closes the matter at nil or minimal penalty and stops interest from compounding further. Litigation is worth the cost and management time mainly where the legal position is genuinely arguable, the amount is material, or a favourable ruling protects future periods too.
We handle DRC-01/DRC-06 replies, ASMT-10 scrutiny responses, first appeals and GSTAT filings end to end — reconciliation, drafting and representation.
GST Notice Handling ASMT-10 Reply Service Talk to usThis article is for general information on GST law as applicable in India as of 26 August 2026 and is not a substitute for advice on specific facts. Penalty, interest and limitation calculations depend on the exact notice, period and conduct alleged — please have your specific notice reviewed before relying on any figure here. Related reading: ISD vs cross-charge under GST, fixing a rejected GST refund (RFD-03), and building your FY 2026-27 compliance calendar.