GST Council Recommends Dropping Arrest Powers, Raising Prosecution Threshold To ₹5 Crore
The GST Council has recommended dropping arrest powers under the Goods and Services Tax (GST) law by omitting Section 69 of the Central Goods and Services Tax Act, 2017.
Section 69 currently allows the tax authorities to authorise the arrest of a person suspected of committing specified GST offences. These offences are set out under Section 132 of the Act and include certain cases involving tax evasion and fraudulent input tax credit.
It has also proposed raising the monetary threshold for prosecution from ₹1 crore to ₹5 crore and narrowing several offences under Section 132.
The recommendations were made at the 57th GST Council meeting held in New Delhi on October 8, chaired by Union Finance and Corporate Affairs Minister Nirmala Sitharaman.
The Council said the measures were aimed at strengthening a “progressive and trust-based tax regime” while retaining effective deterrence against fraud and evasion.
The proposed changes to Section 132 include the omission of the clause (i) of Section 132(1).
The words “evades tax” are proposed to be deleted from clause (e).
The words “or in any other manner deals with” are proposed to be deleted from clause (h).
Section 132(1)(c) is proposed to cover fraudulent availment of input tax credit without receipt of goods or services, or without an invoice or bill.
The Council has also recommended rationalizing punishments for offences under Section 132.
On GST litigation, the Council has proposed a ₹10,000 minimum threshold for issuing show-cause notices, covering CGST, SGST, IGST, and Cess. No notice would be issued where the tax involved is below ₹10,000.
Pending notices and appeals below the threshold would also be dealt with as if the threshold had been in force when the notice was issued.
The Council has proposed a 5% penalty in specified non-fraud cases where tax and interest are paid within 30 days under Section 73 or 60 days under Section 74A of the adjudication order.
It has also recommended reducing the maximum general penalty under Section 125 from ₹25,000 to ₹10,000.
For appeals involving only a penalty and no tax demand, the Council has proposed a ₹40 crore cap on the pre-deposit payable before the Appellate Authority or Appellate Tribunal.
The Council has also recommended guidelines for tax officers on demand notices, adjudication orders, and appeal orders.
The meeting also discussed a broad range of reforms concerning GST registration, returns, refunds, dispute resolution, input tax credit, exports, enforcement and compliance.
The GST Council Meeting recommended making GST registrations easier by issuing a comprehensive circular specifying required documents and information and introducing clearer options in FORM GST REG-01. It also proposed a more user-friendly GST portal with clearer navigation and guidance.
For amendments to registration particulars, the GST Council Meeting recommended automatic acceptance on the GST portal in most cases, with Principal Place of Business details being subject to specified treatment. It also proposed a system-based mechanism for cancellation and revocation of registration, aimed at reducing officer interface.
A simplified registration mechanism was also recommended for small suppliers selling goods through electronic commerce operators in States or Union Territories where they do not have a physical presence.
In addition, the Meeting has recommended greater automation in refund processing. Under the proposed mechanism, full refunds of excess balances in electronic cash ledgers could be sanctioned automatically, while 90% of eligible refund claims relating to zero-rated supplies and inverted duty structure could be sanctioned provisionally through system-based risk evaluation.
The GST Council Meeting has also proposed reducing the period for issuing an acknowledgement or deficiency memo from 15 days to 10 days, with deemed acknowledgement where the proper officer fails to act within that period.
To reduce litigation, the GST Council Meeting also recommended a ₹10,000 minimum threshold for issuance of GST show cause notices. It also proposed a reduced penalty of 5% in specified non-fraud cases where tax and interest are discharged within the prescribed period.
The maximum general penalty under Section 125 is proposed to be reduced from ₹25,000 to ₹10,000. For appeals involving only penalty and no tax demand, the GST Council Meeting proposed an upper limit of ₹40 crore on the pre-deposit requirement.
The GST Council Meeting, in addition, has recommended allowing refunds of accumulated ITC attributable to capital goods in specified zero-rated and inverted duty structure cases. It also proposed changes to blocked ITC provisions covering areas including outdoor catering, health and life insurance, telecommunications towers and certain pipelines.
For exports of services, the GST Council Meeting recommended changes to the definition of export of services and place of supply provisions to facilitate export-related benefits for Indian service providers dealing with foreign offices and recipients.
The GST Council Meeting has also recommended measures for smoother movement of goods, including interception of conveyances based on specific intelligence and authorization by an officer not below the rank of Joint Commissioner.
The recommendations further include waiver of late fees for delayed returns for taxpayers with turnover up to ₹5 crore, subject to specified conditions, and an in-principle concept for an optional Annual Return Quarterly Payment scheme for eligible small B2C taxpayers.
Notably, these are recommendations and will acquire legal effect only through the relevant circulars, notifications or amendments to law.