Tax and GST : Interpretation of Section 73 and Section 74 of CGST Act, 2017 on Input Tax Credit and the Elements of Fraud

Tax and GST : Interpretation of Section 73 and Section 74 of CGST Act, 2017 on Input Tax Credit and the Elements of Fraud

In a recent Judgment it has been explained that Sections 73 and 74 of CGST Act, 2017 are part of the demand and recovery provisions falling under Chapter XV, titled as “Demand and Recovery”. Section 73 provides for “Determination of tax pertaining to the period upto Financial Year 2023-24, not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason “other than fraud or any wilful misstatement or suppression of facts”. It is in such context, sub-section (1) thereof provides that the proper officer shall serve notice in such circumstances, on the person chargeable with tax, as to why he should not pay the amount specified in the notice, along with interest payable thereon under section 50, and a penalty leviable under the provisions of CGST Act or the rules made thereunder. Sub-section (2) provides that the proper officer shall issue notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of an order. Sub-section (3) provides that when such show cause notice has been issued for “any period” under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for such periods other than those covered under sub-section (1), on the person chargeable with tax. Sub-section (4) to sub-section (8) are the provisions which determine the further course of action, which includes the situation as contemplated in sub-section (5) that a person chargeable with tax may, before service of notice under sub-section (1) or, as the case may be, the statement under sub-section (3), pay the amount of tax along with interest payable thereon under section 50 on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment. The proper officer, in such case, in accordance with the provisions of sub-sections (6), (7) and (8) is required to consider whether the tax paid is adequate or they fall short of the actual payment which is required to be made.

Role of Proper Officer under S.73 of the CGST Act, 2017

It is in the aforesaid context, the effect of sub-sections (9) and (10) of Section 73 of CGST Act is required to be considered. Sub-section (9) of the said provisions ordains that the proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent, of tax, or ten thousand rupees, whichever is higher, due from such person and issue an order. In passing such order, the prescribed limitation as provided in sub-section (10) becomes applicable which provides that the proper officer shall issue the order under sub-section (9) “within three years from the due date for furnishing of annual return for the financial year” to which the tax not paid or short paid or input tax credit wrongly availed or utilized relates to or within three years from the date of erroneous refund. 

Determination of Tax and Effect of S.73 and S.74

On a holistic reading of Sections 73 and 74 of the CGST Act, insofar as determination of tax in both situations as contemplated by these provisions are concerned, the provisions appear to be a code by itself which includes machinery provisions in the nature of sub-section (1) and the other sub-sections. 

What is the Period under S.73 or S.74 of CGST Act ?

It is difficult to accept that the intention of the legislature in providing for sub-section (1) of Section 73/74 of CGST Act was to confine the authority of the proper officer to a issue show cause notice not for the different periods but for a specific period for which one return could be filed. This prima facie is clear from the plain language of the provisions and more importantly, from the conjoint reading of sub-sections (1), (2) and (3). Subsection (3) specifically uses the word “for any period under sub-section (1)”. Further, compounded by using the words “such periods other than those covered under sub-section (1) ..…”, when sub section (3) permits issuance of a statement for a period other than the period of the notice under sub-section (1), deeming it to be a notice as provided for in sub-section (4), it gives a credence to the respondents contention of it being permissible for the proper officer to issue a notice for different periods under sub-section (1), as permissible under sub-section (3) and (4).

Case : Rollmet LLP v. Union of India [2026] GCtR 345 (Bombay)