When GST is short-paid, unpaid, or erroneously refunded, the Government initiates demand and recovery proceedings under Sections 73-84 of the CGST Act. Understanding these sections is critical for responding to Show Cause Notices and minimizing penalties.
Covers cases of non-payment/short-payment/erroneous refund due to reasons other than fraud. Show Cause Notice (SCN) issued at least 3 months before time limit. Proper officer must give opportunity of being heard. Tax + interest (18%) payable. If paid within 30 days of SCN — no penalty, no proceedings.
Covers tax evasion through fraud, willful misstatement, suppression of facts. SCN issued at least 6 months before time limit. Penalty equals 100% of tax amount. However, if taxpayer pays tax + interest + 15% penalty within 30 days of SCN — full penalty waived, proceedings deemed concluded.
Adjudicating authority must consider representations, follow principles of natural justice. Order must be issued within 3 years (non-fraud) or 5 years (fraud) from due date of annual return. Self-assessed tax can be recovered without SCN. Rectification of orders allowed within 6 months.
If a person collects GST but doesn't deposit it — amount is recoverable as arrears immediately. No SCN required for the collected amount. Interest at 18% applicable. Penalty provisions apply. Amount to be deposited within 30 days of collection.
If CGST/SGST paid on inter-State supply (or IGST on intra-State), refund can be claimed by filing FORM GST RFD-01 within 2 years. No interest refund if tax was paid voluntarily. The correct tax must be paid to appropriate government before claiming refund.
If tax/interest/penalty not paid within 3 months of order, proper officer can initiate recovery. Multiple methods: deduction from bank account, attachment of movable/immovable property, detention/seizure of goods, recovery through Collector as land revenue, civil imprisonment.
Tax can be recovered from: (a) Partners/Directors if company is dissolved; (b) Transferee of business; (c) Agent of non-resident taxable person; (d) Third person who holds money of the defaulter. Prior notice to the person required.
If a taxable person is entitled to refund from Central Government on any other account, that refund can be adjusted against outstanding GST liability. GST liability gets first priority over other claims on refund amounts.
Recovery proceedings once initiated shall continue even if appeal is filed, unless stay/suspension is granted by appellate authority. Partial payment doesn't stop remaining recovery proceedings.
When a taxpayer fails to pay after demand order, these recovery methods are available to the proper officer — typically used in escalating order.
Proper officer can direct any bank/post office to debit the amount from taxpayer's account and credit to Government
Movable and immovable property of the defaulter can be attached and sold to recover dues
Third party owing money to the defaulter can be directed to pay that amount to the Government instead
District Collector recovers amount as arrears of land revenue — strongest recovery mechanism
As last resort, defaulter can face civil imprisonment if other methods fail and amount exceeds ₹1 crore
If taxpayer had furnished bond/bank guarantee, it can be invoked to recover outstanding amount
| Event | Deadline / Amount | Section |
|---|---|---|
| Non-fraud SCN issuance | Within 2 years 9 months from due date of annual return | 73(2) |
| Non-fraud order | Within 3 years from due date of annual return | 73(10) |
| Fraud SCN issuance | Within 4 years 6 months from due date of annual return | 74(2) |
| Fraud order | Within 5 years from due date of annual return | 74(10) |
| Voluntary payment (before SCN) | Tax + interest + 15% penalty (Sec 73) or 25% penalty (Sec 74) | 73(5)/74(5) |
| Payment within 30 days of SCN | Tax + interest, no penalty (Sec 73) or 15% penalty (Sec 74) | 73(8)/74(8) |
| Payment within 30 days of order | Reduced penalty of 25% (Sec 73) or 50% (Sec 74) | 73(9)/74(9) |
| Recovery initiation | 3 months after date of order (if not paid) | 78 |
Introduced in Budget 2024, operationalized via 53rd/54th GST Council Meeting. Waives interest and penalty for demands under Section 73 (non-fraud) for FY 2017-18 to 2019-20 if taxpayer pays the full tax amount by March 31, 2025. Aimed at reducing litigation backlog and providing relief to genuine taxpayers caught in the initial GST transition period.
Section 73 applies to non-fraud cases (genuine errors, misinterpretation) with a 3-year time limit and no penalty if paid within 30 days of SCN. Section 74 applies to fraud/suppression/misstatement cases with a 5-year time limit and 100% penalty (equal to tax amount). The key test: if non-payment was due to fraud, willful misstatement, or suppression of facts with intent to evade tax — Section 74 applies. Otherwise, Section 73.
Yes. Under Section 79, if tax cannot be recovered from the company (dissolved/wound up), the directors who were in charge of the company at the relevant time are jointly and severally liable. Similarly, partners of a firm are liable for GST dues. However, a director can defend by proving they had no knowledge or exercised due diligence.
For Section 73 (non-fraud): Pay tax + interest within 30 days of Show Cause Notice — NO penalty. For Section 74 (fraud): Pay tax + interest + 15% penalty within 30 days of SCN — remaining 85% penalty waived. Best strategy: If you receive a pre-SCN intimation (DRC-01A), pay immediately with interest to avoid any proceedings entirely.
For non-fraud (Section 73): SCN must be issued at least 3 months before the 3-year deadline from due date of annual return. For fraud (Section 74): SCN must be issued at least 6 months before the 5-year deadline. Example: For FY 2022-23 (return due Dec 2023), non-fraud SCN deadline is Sep 2026, fraud SCN deadline is Jun 2028.
Section 128A, introduced in Budget 2024, provides complete waiver of interest and penalty for GST demands under Section 73 (non-fraud cases) for FY 2017-18, 2018-19, and 2019-20. Condition: taxpayer must pay the entire tax amount demanded by March 31, 2025. This is a one-time amnesty to clear the backlog of early GST-era disputes. It does NOT cover Section 74 (fraud) cases.
Filing an appeal does NOT automatically stay recovery proceedings (Section 84). However, you can apply for stay: (1) First appellate authority can grant conditional stay; (2) Mandatory pre-deposit of 10% (capped at ₹25 crore) is required for first appeal; (3) Additional 10% for Tribunal appeal. High Court can grant stay in writ petitions. Best practice: Apply for stay simultaneously with appeal filing.
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