GST Notice Under Section 61 vs Section 73/74: How to Respond – 2026 Guide
Most business owners who call me after receiving a GST notice ask the same question first: “Sir, yeh kaunsa notice hai — kitna serious hai?” The answer determines everything — the deadline, the response format, the financial exposure, and whether they need a GST practitioner immediately or can handle it themselves.
A Section 61 scrutiny notice is the department asking questions about your returns — it can be resolved with a clear explanation and supporting documents. A Section 73 or 74 demand notice means a tax officer has computed a specific amount owed and is asking you to pay it — with penalties. The two are fundamentally different in nature, urgency, and consequence.
Section 61 — Scrutiny of Returns
Section 61 of the CGST Act allows a proper officer to scrutinise any GST return to verify its correctness. When the system or officer identifies a discrepancy — between GSTR-1 and GSTR-3B, between GSTR-2B and GSTR-3B ITC claims, or between GST and income tax turnover — a scrutiny notice is issued asking for your explanation.
| Aspect | Detail |
|---|---|
| Section | Section 61 — CGST Act 2017 |
| Nature | Scrutiny — information gathering, not demand |
| Issued via | ASMT-10 form on GST portal |
| Response form | ASMT-11 — your reply to the notice |
| Response deadline | Typically 30 days from notice date |
| If explanation accepted | ASMT-12 issued — matter closed, no liability |
| If explanation unsatisfactory | Section 73/74 demand proceedings initiated |
| Penalty at this stage | None — Section 61 itself carries no penalty |
Common Triggers for Section 61
| Discrepancy | What Was Detected |
|---|---|
| GSTR-1 vs GSTR-3B output tax gap | Tax declared in GSTR-1 differs from tax paid in GSTR-3B |
| GSTR-2B vs GSTR-3B ITC mismatch | ITC claimed exceeds ITC available in GSTR-2B from suppliers |
| E-way bill vs GSTR-1 gap | Goods moved under e-way bills not reflected in outward supplies |
| ITR vs GST turnover difference | Income tax turnover differs from GST turnover |
| RCM not discharged | Purchases from unregistered suppliers — RCM liability not paid |
| Blocked ITC not reversed | ITC claimed on Section 17(5) ineligible items |
| GSTR-9 vs GSTR-3B mismatch | Annual return figures differ from monthly return totals |
Section 73 vs Section 74 — Demand Notices
| Parameter | Section 73 — Non-Fraud | Section 74 — Fraud/Suppression |
|---|---|---|
| When applicable | Tax short paid / ITC wrongly availed — WITHOUT fraud or wilful misstatement | Tax short paid / ITC wrongly availed — WITH fraud, wilful misstatement, or suppression |
| Show Cause Notice form | DRC-01 | DRC-01 |
| SCN timeline | At least 3 months before time limit | At least 6 months before time limit |
| Time limit for demand | 3 years from due date of annual return | 5 years from due date of annual return |
| Pay before SCN issued | No penalty — only tax + interest | 15% penalty |
| Pay within 30 days of SCN | No penalty | 25% penalty |
| Pay within 30 days of order | 10% or ₹10,000 (whichever higher) | 50% penalty |
| Order confirmed, not paid | 10% or ₹10,000 | 100% penalty (equal amount) |
| Interest | 18% per annum from original due date | 18% per annum (24% in some fraud provisions) |
Section 73: Pay before or within 30 days of SCN → Zero penalty. Only tax + interest.
Section 74: Pay before SCN is issued → Only 15% penalty instead of 100%.
Under Section 74, waiting for the order to be confirmed costs 6-7× more in penalty than paying when the proceedings begin.
The GST Demand Process — Full Sequence
| Stage | What Happens | Your Action |
|---|---|---|
| 1. Section 61 Scrutiny | ASMT-10 — discrepancy flagged | File ASMT-11 within 30 days |
| 2. Pre-SCN Notice (DRC-01A) | Informal opportunity before formal SCN | Respond or pay — avoid escalation |
| 3. Show Cause Notice (DRC-01) | Formal demand notice with amount and grounds | File DRC-06 reply within 30 days |
| 4. Personal Hearing | Present your case before officer | Attend — do not skip |
| 5. Demand Order (DRC-07) | Officer confirms or modifies demand | Pay within 3 months or appeal (APL-01) |
| 6. Recovery (Section 79) | If unpaid and not appealed — recovery begins | Bank account attachment, asset seizure risk |
DRC-01A: Pre-SCN intimation — informal stage
DRC-01: Show Cause Notice — formal demand
DRC-03: Voluntary payment at any stage
DRC-06: Your reply to the SCN
DRC-07: Final demand order by officer
APL-01: Your appeal to Appellate Authority (10% pre-deposit required)
Responding to ASMT-10 — Step by Step
-
1Read the ASMT-10 carefully
Identify the exact discrepancy — which return period, which specific figures, and what the officer is alleging. ASMT-10 will show: “GSTR-3B ITC claimed: ₹X. GSTR-2B ITC available: ₹Y. Difference: ₹Z. Explain.” -
2Verify your own records
Pull GSTR-1, GSTR-3B, GSTR-2B for the relevant period. Is the discrepancy genuine or a timing/classification issue? Supplier filed GSTR-1 late? Credit note not adjusted? IGST vs CGST/SGST mismatch? -
3If genuine error — pay via DRC-03 first
Pay the difference (tax + 18% interest) via DRC-03 on the GST portal before filing ASMT-11. Then reference the challan in ASMT-11. Under Section 73 — no penalty if paid before SCN. This is the fastest and cheapest resolution. -
4If discrepancy is explainable — document and respond
Prepare a point-by-point reply with supporting evidence: supplier’s late GSTR-1 filing proof, reconciliation statement, corrected workings. Attach as PDF. -
5File ASMT-11 on GST portal
gst.gov.in → Services → User Services → View Notices and Orders → ASMT-10 → Reply → Fill ASMT-11 → Attach documents → Submit → Save ARN. -
6Track for ASMT-12
ASMT-12 = officer’s acceptance of your explanation = matter closed. If DRC-01A or DRC-01 arrives instead — engage a GST practitioner immediately.
Three Real Scenarios
Scenario 1 — Supplier Filed Late — Section 61 Closed in 25 Days
Amit’s firm claimed ₹3.8 lakh ITC in GSTR-3B for Q3 FY 2023-24. GSTR-2B showed only ₹2.9 lakh — ₹90,000 gap. ASMT-10 arrived.
The ₹90,000 ITC was from three suppliers whose GSTR-1 for October came in November — so the ITC appeared in Q4 GSTR-2B, not Q3. Amit filed ASMT-11 with supplier GSTR-1 filing dates, the Q4 GSTR-2B screenshot, and annual GSTR-9 reconciliation showing ITC correctly captured. ASMT-12 acceptance came in 25 days. Zero demand, zero penalty.
Scenario 2 — Genuine ITC Error — DRC-03 Closed It Cleanly
Priya’s trading firm received Section 61 notice — ₹1.4 lakh ITC claimed on a supplier whose GSTIN was retrospectively cancelled. The ITC was ineligible.
She paid ₹1.4 lakh tax + ₹25,200 interest (18% × 1 year) via DRC-03 before responding. Her ASMT-11 referenced the challan. Matter closed — no penalty (Section 73 — pay before SCN = zero penalty). Total cost: ₹1.65 lakh. Had she waited for DRC-07: same tax + interest + ₹14,000 minimum penalty + months of proceedings.
Scenario 3 — Section 74 Fraud Allegation — Partially Contested, Won ₹11L
Rajesh’s construction firm received DRC-01 under Section 74 — ₹18 lakh demand for ITC on allegedly fake invoices. Of ₹18L: ₹11L had full documentation (e-way bills, NEFT payments, delivery challans). ₹7L — documentation was weak.
His GST practitioner paid ₹7L via DRC-03 within 30 days of SCN — 25% penalty (₹1.75L) instead of waiting for order (50% = ₹3.5L) or ignoring (100% = ₹7L). Filed DRC-06 contesting ₹11L with complete evidence. After personal hearing — DRC-07 confirmed only ₹7L demand. ₹11L dropped. Total cost: ₹8.75L. Without professional response: ₹18L tax + ₹18L penalty = ₹36L+ exposure.
Prevention — Avoiding Notices Entirely
| Action | Prevents | When |
|---|---|---|
| Reconcile GSTR-2B vs GSTR-3B before filing | ITC mismatch — most common trigger | Every month |
| Reconcile GSTR-1 vs GSTR-3B output tax | Output tax discrepancy | Every month |
| Verify supplier GSTIN status before ITC claim | ITC from cancelled/fake GSTINs | Per invoice for large amounts |
| Reconcile GST turnover vs ITR turnover | Cross-department mismatch | Annual — before July 31 ITR filing |
| File accurate GSTR-9 | Annual reconciliation discrepancy | Annual — before December 31 |
| Discharge RCM on unregistered purchases | RCM non-compliance notice | Monthly if applicable |
| Reverse Section 17(5) blocked ITC | ITC reversal notice | Monthly |
Frequently Asked Questions
Q1. My GSTR-1 shows ₹50L turnover but GSTR-3B shows ₹48L — why?
Most common cause: timing. Invoices issued in March included in GSTR-1 but liability not yet in GSTR-3B because supply/payment was in April. Also check: credit notes in GSTR-1 not reflected in GSTR-3B, or IGST vs CGST/SGST classification errors. File ASMT-11 with a month-by-month turnover reconciliation explaining the timing difference.
Q2. I missed the ASMT-11 deadline. What now?
File it anyway — late is better than never. If the portal does not accept it, send the response directly to your jurisdictional GST officer in writing. Non-response is treated as acceptance of the discrepancy. Engage a GST practitioner immediately — late response has specific procedural consequences that vary by jurisdiction.
Q3. Notice says Section 74 (fraud) but my mistake was genuine. Can I contest?
Yes — this is one of the most important contests to make. Section 73 (non-fraud) vs Section 74 (fraud) changes your maximum penalty from 10% to 100%. In your DRC-06 reply, present complete evidence of genuine transactions — e-way bills, delivery challans, NEFT payment records, email correspondence. Many Section 74 notices are reclassified to Section 73 when taxpayer demonstrates genuine business activity.
Q4. Can I pay part of a Section 73 demand and dispute the rest?
Yes. Pay the undisputed portion via DRC-03 immediately — avoids penalty and stops interest on that portion. File DRC-06 disputing the balance with documentation. After DRC-07 order, appeal the disputed portion via APL-01 with 10% pre-deposit of disputed amount.
Q5. How far back can the department issue GST demands?
Section 73 (non-fraud): 3 years from due date of annual return for that financial year. Section 74 (fraud): 5 years. For FY 2021-22 (GSTR-9 due December 31, 2022): Section 73 expired December 31, 2025; Section 74 runs until December 31, 2027. Demands for older years still arrive — check the time limits carefully before responding.
Q6. Which form to use for voluntary GST payment?
Form DRC-03 — gst.gov.in → Services → Ledgers → Payment Towards Demand. Use at any stage: before SCN (avoids Section 73 penalty entirely), after SCN but before order (reduces Section 74 penalty to 25%), or after order. Always reference the DRC-03 challan number in your ASMT-11 or DRC-06 response.
Conclusion
Section 61 is a question. Section 73/74 is a bill. Answering the question promptly — with documentation, and voluntary DRC-03 payment where needed — prevents it from becoming a bill. When the bill arrives, paying under Section 73 before the SCN costs zero in penalty; waiting for the final order costs 10%. Under Section 74, paying before the SCN costs 15%; ignoring until the order costs 100%.
Amit, Priya, and Rajesh each faced different situations — but the outcome in every case was determined by the speed and quality of the response, not by the size of the original discrepancy. The interest meter runs from the original due date. Every month of delay on a ₹10 lakh demand adds ₹15,000 in interest. Act early, document thoroughly, pay what is undisputedly owed immediately.
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