CGST Act 2017 Section 74: Demand Involving Fraud (2026)
What Section 74 of the CGST Act, 2017 does: it is the demand provision used when tax is short paid or credit is wrongly taken because of fraud, wilful misstatement or suppression. This explains the notice, the longer time limit, the steep penalty, and the escape routes. Last verified October 2026.
Explainer · GST · CGST Act
Section 74 of the CGST Act, 2017 is the serious demand provision. The department uses it when it believes tax was not paid, or input tax credit was wrongly taken, because of fraud, wilful misstatement or suppression of facts. It carries a longer time limit than Section 73 and a penalty that can reach 100% of the tax. If a show cause notice cites Section 74, the stakes are higher and the words it uses matter. This explainer sets out what Section 74 covers, the time limit, the penalty ladder, and when the department can use it at all. Last verified October 2026.
- What it is: Section 74 recovers tax short paid or credit wrongly taken by reason of fraud, wilful misstatement or suppression.
- Time limit: order within 5 years of the annual return due date, with the notice at least 6 months earlier.
- Penalty: 15% if paid before the notice, rising to 25%, then 50%, then 100% of the tax.
- Key fight: the notice must prove real fraud or suppression, not just repeat the words of the section.
01What Section 74 covers
Section 74 deals with the same four situations as Section 73, that is tax not paid, tax short paid, a wrong refund, and input tax credit wrongly availed or utilised. The difference is the cause. Section 74 applies only when this happened by reason of fraud, or any wilful misstatement, or suppression of facts to evade tax.
The officer issues a show cause notice, usually in Form GST DRC-01, and must spell out the fraud, misstatement or suppression alleged. You reply and are heard, and the demand is confirmed by an order in Form GST DRC-07.
02The three magic words
Section 74 can be invoked only if one of three things is present: fraud, wilful misstatement, or suppression of facts to evade tax. These are not mere labels.
Why the wording is the whole case
Courts have repeatedly set aside Section 74 notices where the department simply copied the words of the section without explaining what the taxpayer actually concealed. A bare allegation of suppression, with no supporting fact, often converts the matter back to Section 73 and its shorter limit.
So the first thing to check in a Section 74 notice is whether it names a real, specific act of fraud or suppression, or only repeats the statutory language. See how the DRC-01 show cause notice works.
03Time limit for the notice and order
Section 74 gives the department longer, because evasion is harder to detect.
- The order under Section 74 must be passed within five years from the due date of the annual return for that financial year (or from the date of the erroneous refund).
- The show cause notice must be issued at least six months before that five year deadline, so in practice within about four years and six months.
This extra time is one reason the department prefers Section 74. But it can only use the longer limit if the fraud or suppression is genuinely made out.
04The penalty ladder
Under Section 74 there is always some penalty. How much depends on how early you pay.
| When you pay | Penalty on top of tax and interest |
|---|---|
| Before the show cause notice | 15% of the tax |
| Within 30 days of the show cause notice | 25% of the tax |
| Within 30 days of the order | 50% of the tax |
| Later | 100% of the tax |
Paying early therefore saves a great deal. You pay through Form GST DRC-03; see how DRC-03 payment works.
05Section 74 against Section 73
The choice between the two provisions is the single biggest issue in most GST demands, because it decides both the time limit and the penalty.
| Point | Section 73 (no fraud) | Section 74 (fraud) |
|---|---|---|
| Trigger | Honest error | Fraud, wilful misstatement or suppression |
| Order time limit | 3 years | 5 years |
| Lowest penalty | Nil if paid before or within 30 days of notice | 15% if paid before notice |
| Highest penalty | 10% of tax or Rs 10,000 | 100% of tax |
For the ordinary, no-blame route, see Section 73 of the CGST Act. If you want to contest a confirmed demand, see how to challenge a GST order before the Appellate Authority.
06What changed from FY 2024-25
For the financial year 2024-25 onwards, a new Section 74A, inserted by the Finance (No. 2) Act, 2024 and effective from 1 November 2024, replaces both Section 73 and Section 74. It sets one common time limit and procedure, though the penalty still rises where fraud is involved.
Section 74 continues to apply to the earlier periods, from July 2017 up to the financial year 2023-24, so fraud demands for those years still come under Section 74.
07Where Claw fits
Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.
Because a Section 74 demand lives or dies on whether fraud or suppression is properly made out, the case law is everything. Claw lets you search more than 30 crore judgments and orders, with results in under 5 seconds, so you can find where High Courts have quashed Section 74 notices for bare allegations, and how the penalty ladder has been applied. Reported authority runs from Supreme Court rulings of 1950 and High Court rulings of 1990 to the latest orders. You can also track a live GST matter, with its notices, orders and hearings, by party name across 9,102 courts, benches and forums. Claw does not use the documents you upload to train its AI models.
Create a FREE Claw account to track your GST demand and its hearings, and use case search across Indian courts to find how Section 74 has been read. For ongoing files, teams use GST litigation and notice tracking.
08Sources and further reading
- India Code (CGST Act, 2017 bare text): indiacode.nic.in
- CBIC GST (official GST portal and law): cbic-gst.gov.in
- GST Council: gstcouncil.gov.in
- Claw: clawlaw.in
This explainer is general information, not legal or tax advice. GST law changes often through amendments, notifications and circulars, so check the current text and take advice from a professional before you act.
09Frequently asked questions
What is Section 74 of the CGST Act?
Section 74 lets a GST officer recover tax not paid, short paid, wrongly refunded, or credit wrongly taken, where this happened by reason of fraud, wilful misstatement or suppression of facts. It carries a longer time limit and a heavier penalty than Section 73.
What is the time limit under Section 74?
The order must be passed within five years from the due date of the annual return for that financial year, and the show cause notice must come at least six months before that, so about four years and six months.
What is the penalty under Section 74?
The penalty is 15% of the tax if you pay before the notice, 25% if within 30 days of the notice, 50% if within 30 days of the order, and 100% otherwise. There is always some penalty, unlike Section 73.
Can the department use Section 74 for any shortfall?
No. Section 74 applies only where there is fraud, wilful misstatement or suppression of facts to evade tax. If the notice only repeats those words without real facts, courts often strike it down and treat the matter as a Section 73 case.
How is Section 74 different from Section 73?
Section 73 is for honest errors with a three year limit and a light penalty. Section 74 is for fraud with a five year limit and up to 100% penalty. The presence or absence of fraud decides which one applies.
Does Section 74 still apply for recent years?
Section 74 applies for periods from July 2017 up to the financial year 2023-24. For 2024-25 onwards, the common provision Section 74A governs demands whether or not fraud is involved.