GST Council Recommends Decriminalization Measures and Abolition of Arrest Powers Under GST

1. Core Facts & Background

• The 57th GST Council meeting introduced sweeping process reforms targeting registration, returns, refunds, and dispute settlement mechanisms.
• Significant relief measures were approved to eliminate coercive enforcement and rationalize penal liabilities across various categories of taxpayers.
• System-based automation was recommended to replace subjective manual interventions across registrations, cancellations, and statutory refund disbursements.
• Reforms also addressed seamless Input Tax Credit flow, transit e-way bill enforcement protocols, and key service sector tax exemptions.

2. Revenue / Department’s Action

• The department proposed complete withdrawal of arrest powers under GST by recommending the statutory omission of arrest provisions.
• The department raised the minimum prosecution threshold from one crore rupees to five crore rupees, restricting criminal actions to serious fraudulent input credit claims.
• Revenue authorities restricted transit conveyance interceptions to instances backed by specific intelligence and prior authorization from a Joint Commissioner.
• The department mandated automated processing timelines for refunds, reducing manual scrutiny and setting a minimum notice threshold of ten thousand rupees.

3. Assessee’s Defense & Arguments

• The assessee community had long sought relief from arbitrary road-transit detentions and intrusive physical verifications in non-jurisdictional states.
• The assessee highlighted heavy working capital blockages caused by delayed refunds and restrictions on input credit for capital goods and input services.
• The assessee raised concerns regarding the harsh impact of arrest provisions and disproportionate pre-deposit burdens during routine dispute resolution.
• The assessee emphasized the necessity of automated registration processes, seamless credit reversals, and reduced compliance burdens for small digital sellers.

4. Final Ruling & Outcome

• The GST Council recommended the complete omission of arrest powers and elevated the monetary threshold for initiating prosecution to five crore rupees.
• Automated processing was established for registrations, cancellations, and provisional refunds, alongside a monetary cap on appellate pre-deposits.
• Statutory restrictions on input tax credit for essential operational expenditures, including health insurance and telecommunication infrastructure, were resolved to be removed.