Last reviewed: 25 September 2026. A large share of the GST demand notices landing on businesses this year recite “fraud”, “wilful misstatement” or “suppression of facts” even where the underlying dispute is, on the facts, an ordinary interpretational disagreement. What that recital buys the department depends entirely on the period involved, and this is where most replies go wrong. For periods up to FY 2023-24, governed by Sections 73 and 74, the allegation genuinely does unlock a longer limitation window — 4 years 6 months for the notice instead of 2 years 9 months — as well as a 100% penalty. For FY 2024-25 onward, governed by the unified Section 74A, it unlocks nothing on limitation: the 42-month window is common whether or not fraud is alleged, and the allegation drives penalty quantum alone. The Supreme Court has now set the threshold for that allegation in M/s Tata Steel Limited v. Union of India & Ors., 2026 INSC 920 (August 2026), holding that a mechanical recital of suppression will not extend limitation and that the show-cause notice must plead the foundational facts. For any business holding a Section 74 or 74A notice, working out which of these two regimes applies is the first step in the reply, not the last.
Section 73, 74 and 74A: the legal framework
Under the CGST Act as it applied through FY 2023-24, Section 73 deals with demands for tax short-paid, tax erroneously refunded, or input tax credit wrongly availed or utilised for any reason other than fraud, wilful misstatement or suppression of facts to evade tax. It carries the normal limitation period and a comparatively modest penalty exposure — broadly around 10% of the tax, subject to a floor of ₹10,000, and even that can be avoided if the tax and interest are paid before a show-cause notice is issued. On limitation, Section 73 requires the order within 3 years of the due date for furnishing the annual return for that financial year, and the notice at least 3 months before that — in practice, 2 years 9 months. Section 74 covers the identical substantive situation but where fraud, wilful misstatement or suppression is alleged. Because that allegation is present, Section 74 stretches the order limit to 5 years and the notice limit to 4 years 6 months, and raises penalty exposure to 100% of the tax demanded. That gap of roughly 21 months is what a fraud recital actually buys the department for periods up to FY 2023-24.
From FY 2024-25 onward, Section 74A — inserted by the Finance (No. 2) Act, 2024 with effect from 1 November 2024 — replaces this dual structure with a single section. The notice must be issued within 42 months of the due date for furnishing the annual return for the financial year (or of the date of erroneous refund), and the order within 12 months of the notice, extendable by up to 6 months with the Commissioner's approval. Those limits are common: they do not change according to whether fraud is alleged. What the fraud finding still decides, entirely, is the penalty — 10% of tax or ₹10,000 in ordinary cases against 100% where fraud, wilful misstatement or suppression is established, with correspondingly different settlement rates before and after the notice. So the substantive question that decides how painful a Section 74A notice becomes is unchanged: was there genuine fraud, or was this a bona fide, arguable interpretation of the law?
Why "fraud" is doing so much work in GST notices right now
For periods up to FY 2023-24 the incentive is structural. The Section 73 window is comparatively short at 2 years 9 months, and a large number of routine issues — a classification dispute, a valuation disagreement, an ITC claim resting on a debatable reading of Rule 36 or Section 16 — surface only during audit or scrutiny of older returns, by which time that window has closed. Reciting "fraud, wilful misstatement or suppression of facts with intent to evade tax" revives the period and simultaneously lifts the penalty band to 100%, regardless of whether the underlying facts support that characterisation. That is the pattern courts have started to scrutinise rather than take at face value.
For FY 2024-25 onward the incentive is narrower, and businesses should not carry the older framing across. Under Section 74A the 42-month window applies to every case, so a fraud recital adds nothing to the department's ability to reach the period — indeed 42 months is longer than the Section 73 window it replaced. What the recital does is move the penalty from 10% of tax (or ₹10,000, whichever is higher) to 100%, and remove the ability to close the matter by paying tax and interest alone. The threshold challenge to the allegation therefore remains just as worth making for a Section 74A notice; it is simply worth a different thing — a collapse in penalty rather than the loss of the period.
What courts have said: the fraud-allegation test
The position is now settled at the highest level. In M/s Tata Steel Limited v. Union of India & Ors., 2026 INSC 920, the Supreme Court set aside a Section 74 show-cause notice and held that extended limitation cannot be invoked on a mechanical recital of fraud or suppression: the notice must plead the foundational facts on which the allegation rests. General allegations will not do. The notice must set out, with particulars, what was suppressed, from whom, and with what intent to evade tax — and that allegation must be capable of being sustained on the material actually available to the department. Courts have repeatedly distinguished between (a) a taxpayer's failure to disclose something because of a genuinely held, arguable interpretation of an ambiguous provision, and (b) a positive, deliberate act of concealment undertaken specifically to evade tax. Only the second can sustain extended limitation under Section 74, or a 100% penalty under Section 74A. The burden of establishing that distinction rests on Revenue, not on the taxpayer to disprove fraud. A notice that simply recites the statutory language without identifying a specific suppressed fact, and without addressing why a bona fide interpretational dispute should instead be treated as deliberate evasion, is now vulnerable to challenge on this threshold ground alone — independent of whatever the merits of the underlying tax position may be.
Section 73 vs Section 74 vs Section 74A at a glance
| Aspect | Section 73 | Section 74 | Section 74A (FY 2024-25 onward) |
|---|---|---|---|
| Periods covered | Up to FY 2023-24 | Up to FY 2023-24 | FY 2024-25 onward |
| Applies when | No fraud/suppression alleged | Fraud/wilful misstatement/suppression alleged | All cases; the fraud question is decided on facts and goes to penalty only |
| Time limit for notice | 2 years 9 months from the annual return due date | 4 years 6 months from the annual return due date | 42 months from the annual return due date — common, whether or not fraud is alleged |
| Time limit for order | 3 years from the annual return due date | 5 years from the annual return due date | 12 months from the notice, extendable by up to 6 months |
| Penalty if paid before SCN | Nil | 15% of tax | Nil in ordinary cases; 15% where fraud is alleged |
| Maximum penalty if contested and confirmed | 10% of tax or ₹10,000, whichever is higher | Up to 100% of tax | 10% of tax or ₹10,000 ordinarily; up to 100% only if fraud/suppression is actually established |
| What a successful fraud challenge wins | Not applicable | The period itself, plus the penalty band | The penalty band only — limitation is unaffected |
| Key defence available | Merits of the tax position | Merits, plus challenge to the fraud allegation itself | Merits, plus challenge to the fraud allegation itself |
Worked example
Consider a mid-sized trading company that claimed input tax credit of ₹42 lakh in FY 2018-19 on the basis of a reasonable, if ultimately debatable, reading of the place-of-supply and eligibility rules for a category of input services. In February 2025 the department issues a notice under Section 74 for that period, alleging "wilful suppression" and demanding ₹42 lakh tax, ₹42 lakh penalty (100%) and interest — a total exposure north of ₹90 lakh.
Run the limitation math before anything else, because it frames the entire reply. The GSTR-9 due date for FY 2018-19 was extended to 31 December 2020. That put the Section 73 notice deadline originally at 30 September 2023; under Section 168A, Notification 56/2023-CT (28 December 2023) extended the Section 73 order deadline for FY 2018-19 to 30 April 2024, which moved the notice deadline to about 31 January 2024 — still long closed, by roughly a year, when this notice was issued in February 2025. The Section 74 notice deadline is 30 June 2025, with the order to follow by 31 December 2025. So the notice is within the Section 74 window, but only because of the fraud allegation, and it will fall outside every window if that allegation does not hold. Note the corollary: had the same notice been issued in 2026, it would have been barred even under Section 74, and limitation alone would have disposed of it without any argument on suppression.
On scrutiny, the notice does not identify any specific document withheld from the department, any specific misdeclaration in the returns, or any positive act of concealment; it simply recites that the credit was "wrongly availed with intent to evade tax." Measured against Tata Steel, that is precisely the mechanical recital the Supreme Court has held cannot carry extended limitation. If the company can show that its ITC position was disclosed in its returns as filed, was based on an arguable reading of the provision, and that the department's own position on the underlying eligibility question has itself been unsettled or has changed over time, the threshold challenge becomes the primary line of defence. Success on that point does not, by itself, validate the ITC claim on merits — but it takes the entire period out of the extended-limitation net, and with the Section 73 window long closed, the demand does not survive at all.
Now shift the same facts to FY 2024-25 and the arithmetic changes shape. The GSTR-9 due date is 31 December 2025, so the Section 74A notice deadline is 30 June 2029 whether or not fraud is alleged. Knocking out the suppression allegation there does not save the period — the department reaches it either way — but it takes the penalty from ₹42 lakh down to ₹4.2 lakh, and restores the option of closing the matter on tax and interest alone. Same argument, different prize.
Common mistakes and red flags in replying to a Section 74/74A notice
- Jumping straight to the merits of the tax demand and ignoring the threshold question of whether the fraud allegation itself is legally sustainable.
- Treating a boilerplate recital of "fraud, wilful misstatement or suppression" in the notice as unchallengeable simply because it appears in a government notice.
- Failing to point out, with reference to returns and correspondence on record, that the relevant fact was in fact disclosed or was ascertainable from filed data — which undercuts a suppression allegation.
- Not distinguishing, in the reply, between a genuine interpretational dispute and deliberate evasion — courts look for exactly this distinction to be drawn out on the facts.
- Missing the limitation math altogether — not working out, from the annual return due date for the year in question, whether the notice is even within time, and whether the period would have been time-barred under ordinary Section 73 limitation but for the fraud allegation.
- Assuming that because FY 2024-25 onward uses a single Section 74A, the fraud/suppression distinction no longer matters — it still fully determines the penalty outcome and remains central to the defence.
- The opposite error, and now the more common one: carrying the Section 74 "extended limitation" framing into a Section 74A reply. For FY 2024-25 onward the 42-month window applies whether or not fraud is alleged, so a reply built around saving the period from extended limitation is arguing a point that does not exist.
What a business should do now
On receiving a Section 74 or Section 74A show-cause notice, the first exercise is limitation, before a word is written on merits or on suppression. Take the due date for furnishing the annual return for the year in question — including any extension notified for that year, which materially moves the dates for the early GST years — and apply the relevant window: 4 years 6 months for a Section 74 notice, 2 years 9 months for Section 73, 42 months for Section 74A. A notice issued beyond its own outer limit is bad on its face and should be met on that ground first. For a Section 74 notice within time, establish whether the period would have been closed under Section 73, because that is exactly what the fraud allegation is being used to recover and it sets the stakes of the threshold argument. For a Section 74A notice, accept that the period is reachable and direct the same argument at penalty instead.
The second exercise is a careful, dated read of the notice to identify exactly what specific fact is alleged to have been suppressed, from whom, and what intent is attributed. If the notice does not go beyond reciting the statutory language, that gap should be raised formally and early, citing Tata Steel and supported by the return filings and any correspondence showing the relevant position was on record. Because this is a genuinely two-layered defence — a threshold legal challenge to the fraud allegation, and separately the substantive merits of the tax position — professional assistance in structuring the reply, and in deciding which points to lead with, materially affects the outcome.
If an order is passed despite the reply, the first appeal lies to the Appellate Authority in Form GST APL-01 within three months of the order being communicated, and a further appeal lies to the GST Appellate Tribunal (GSTAT), which is now functional. Our GST demand appeal and GSTAT guide walks through the appeal stage.
Frequently asked questions
What is the real difference between Section 73 and Section 74 notices under GST?
Section 73 applies when tax has been short-paid or ITC wrongly availed for reasons other than fraud, wilful misstatement or suppression: the notice must be issued within 2 years 9 months of the annual return due date and the order within 3 years, with penalty of 10% of tax or ₹10,000, whichever is higher. Section 74 applies to the same situation where fraud, wilful misstatement or suppression is specifically alleged, and stretches those limits to 4 years 6 months and 5 years respectively, with penalty of up to 100% of the tax. Both apply only to periods up to FY 2023-24.
What does Section 74A change from FY 2024-25?
Section 74A, inserted by the Finance (No. 2) Act, 2024 with effect from 1 November 2024, replaces Sections 73 and 74 for FY 2024-25 onward with a single section. The notice must be issued within 42 months of the annual return due date and the order within 12 months of the notice, extendable by up to 6 months. Those limits are common to every case, so alleging fraud no longer extends limitation at all. The fraud question survives, but it now decides only the penalty — 10% of tax or ₹10,000 ordinarily, against up to 100% where fraud is established.
Can I challenge a Section 74 or 74A notice just on the fraud allegation, without arguing the tax merits?
Yes. In M/s Tata Steel Limited v. Union of India, 2026 INSC 920, the Supreme Court set aside a Section 74 notice and held that general allegations of fraud or suppression will not extend limitation — the notice must plead the foundational facts. For a Section 74 period, the challenge can defeat the notice outright on limitation. For a Section 74A period it does not touch limitation, which is common at 42 months, but it collapses the penalty from 100% to the ordinary band. Either way, it can be raised independently of the merits of the underlying demand.
What counts as “particulars” that Revenue must show to justify a fraud allegation?
Revenue is generally expected to identify the specific fact or document that was withheld, show it was not disclosed or ascertainable from the taxpayer's returns or records, and establish that the omission was a deliberate, positive act intended to evade tax, not merely a debatable interpretational position honestly taken.
Does a genuine mistake or an arguable legal interpretation amount to suppression?
Generally not. Courts have repeatedly distinguished a bona fide, arguable interpretation of an ambiguous provision from deliberate concealment undertaken to evade tax. Only the latter is capable of sustaining a fraud allegation — and with it extended limitation under Section 74, or a 100% penalty under Section 74A. A defensible interpretational position, even if ultimately rejected on merits, should not by itself amount to suppression.
What happens if the fraud allegation is knocked out but the tax demand itself is otherwise valid?
It depends on the period. For a Section 74 period, if the extended-limitation basis fails, any part of the demand that would have been time-barred under ordinary Section 73 limitation cannot survive, even if the underlying tax position might have been correct on merits — exposure is confined to periods still within the normal window, at the lower Section 73 penalty band. For a Section 74A period the period itself is unaffected, since the 42-month limit applies either way, but the penalty falls from up to 100% of tax to 10% of tax or ₹10,000, and the option of closing the matter by paying tax and interest alone is restored.
If you have received a Section 74 or 74A show-cause notice, or expect one for an older period, we help businesses assess whether the fraud/suppression allegation is legally sustainable, structure a reply that leads with the strongest threshold defence, and separately evaluate the merits of the underlying demand.
GST Notice Handling GST Advisory Services Talk to usThis article is general information for educational purposes, not a legal opinion on any specific case or notice. GST law, circulars and judicial positions referenced above are subject to change and to the final orders of the relevant courts and authorities; verify the current status before acting, and consult a qualified professional with your specific facts before deciding how to respond to any notice.