Section 74 Notices on Input Tax Credit for FY 2022-23: What Must Be Shown and How to Respond

This article examines the demand notices and DRC-01A intimations issued around the end of September 2026 for FY 2022-23 under Section 74 of the CGST Act, what the department must establish for such a demand on input tax credit, and how an assessee should reply.

It matters now because intimations of this kind have been issued with allegations of fraud that are not tied to any transaction, and the timing suggests that approaching limitation, rather than evidence, is driving them. The typical allegations are that the supplier's registration was cancelled retrospectively, that the supplier is "non-genuine", or that the credit was flagged as risky on the departmental portal. A reply that is filed within time and addresses the legal requirements is the assessee's first protection.

The governing provisions

Section 73 covers demands not involving fraud. Section 74 covers tax not paid or short paid, or wrongly refunded, or input tax credit wrongly availed or utilised, by reason of fraud, wilful misstatement or suppression of facts to evade tax.

For FY 2022-23, the periods are as follows:

  • Section 73: notice within 42 months from the due date of the annual return, and an order ordinarily within 12 months of the notice, subject to a limited extension.
  • **Section 74(2)😗* a notice under Section 74(1) must be issued at least six months before the time limit for passing the order under Section 74(10).

On the ordinary statutory computation, the show cause notice deadline for FY 2022-23 falls on 30 September 2026 for both sections. The order deadline under Section 73 falls on 31 December 2027, subject to the statutory provisions, and under Section 74 on 31 March 2029. These dates should be checked against any extension notified for the year.

Other provisions that figure in these matters are Section 16 (conditions for input tax credit), Section 50 (interest), Section 67 (inspection, search and seizure), Section 70 (summons), Section 122 (penalty for specified offences) and Section 155 (burden of proof on the recipient claiming credit). Separate findings may also be needed under Section 38 and Rule 36.

Whether limitation can justify section 74

Section 74 is an exceptional provision that depends on specific jurisdictional facts. The question is whether credit was wrongly availed because of the recipient's fraud, wilful misstatement or suppression of facts. Absent evidence of that, the section cannot be invoked.

The Supreme Court has held in a recent decision that the extended limitation under Section 74 operates only where the allegation genuinely concerns fraud, wilful misrepresentation or suppression, and that an ordinary dispute over input tax credit cannot be labelled fraud in order to obtain the five-year period. Approaching limitation is therefore not a ground for selecting Section 74. Limitation also does not validate a defective notice.