The 57th GST Council meeting may be remembered less for what it did to tax rates than for what it proposed to do to the relationship between the State and the taxpayer. It recommended to omit Section 69 of the CGST Act thereby removing GST administration’s power to arrest which is the clearest expression of a shift from coercive enforcement towards a trust-based tax regime. On 8 October 2026, The Council, chaired by Finance Minister Nirmala Sitharaman, recommended the complete omission of Section 69 of the CGST Act, 2017 – the provision that allowed tax officials to arrest a person for GST offences.
This was the fifty-seventh meeting of the Council. The last one i.e. fifty-sixth meeting, held last year, majorly focused on rate rationalisation. But this one focused on procedural reforms such as registration, returns, refunds, adjudication, and dispute resolution. The Council approved a number of measures that, taken together, attempt to rebuild trust in the GST system. This recommendation is not yet the established law. It will require amendment by the Parliament. But it signals an attempt to make GST enforcement less retributive without abandoning deterrence against serious fraud.
Three recommendations stand out. The First one being, complete withdrawal of arrest powers under GST. Section 69 currently allows arrest for offences involving evasion, false invoicing, and obstruction. Its removal means GST offences will be dealt with through prosecution and penalty, not custody. The Council also raised the monetary threshold for prosecution from Rs 1 crore to Rs 5 crore. Below that amount, prosecution will not be initiated. Secondly, the maximum general penalty under Section 125 of the Act has been reduced from Rs 25,000 to Rs 10,000.
For non-fraud cases, where the tax and interest are paid within 30 or 60 days of the adjudication order, the penalty is reduced to 5 per cent. The minimum penalty of Rs 10,000 in non-fraud cases has been removed entirely. And show cause notices will not be issued for amounts below Rs 10,000. Third, the pre-deposit required for filing an appeal against a penalty-only order is now capped at Rs 40 crore – Rs 20 crore under CGST and Rs 20 crore under SGST. This removes a significant financial barrier for businesses seeking to challenge penalty orders.
Altogether, these measures reduce the coercive power of the tax administration. They signal that the state intends to use prosecution sparingly, and to reserve it for serious fraud. A tax system cannot operate on trust alone because in the contemporary world, use of A.I. can be detrimental to the system and the trust, A.I. can make Fake invoices which would further increase fraudulent input tax credit and deliberate evasion impose costs on the compliant taxpayer as well as the exchequer. The case for decriminalisation, therefore, is not a case for weak enforcement. It is a case for reserving the harshest coercive powers for conduct that genuinely warrants them.
Faster refunds
The Council has recommended system-based, automated processing of refund claims. In Phase 1, refunds of excess balance in the electronic cash ledger will be sanctioned automatically by the system, without officer intervention. The time limit for issuing an acknowledgement or deficiency memo is reduced from 15 days to 10 days. For refund claims on zero-rated supplies and inverted duty structures, 90 per cent of the claimed amount will be sanctioned provisionally and automatically.
In Phase 2, refunds on zero-rated supplies will be sanctioned automatically after system-based verification, with no manual checks. These measures will improve cash flows for exporters and businesses with accumulated input tax credit. The Council is trying to reduce the taxpayer’s dependence on the discretion of the individual officer. Refunds, registration and amendments are increasingly being pushed towards automated decisionmaking. This could reduce delay and arbitrariness. But The Council has recommended amendments to Section 17(5) of the CGST Act to remove restrictions on availing input tax credit for outdoor catering, health and life insurance, telecommunication towers, pipelines laid outside factory premises, free samples, and goods destroyed or written off on expiry of shelf life as required by law.
It has also recommended refund of accumulated input tax credit on capital goods and input services in cases of zero-rated supplies and inverted duty structures. For input services, the refund is available for credit availed on or after 1 November 2026. For capital goods, the refund will be spread over 60 months and available for credit availed on or after 1 April 2027. The harder question here is not merely whether input tax credit should be broadened, but whether a compliant buyer should bear the consequences of a supplier’s misconduct over which the buyer had no control?
Ease of Moving goods
The Council has recommended amendments to Sections 68, 129, and 130 to restrict the interception of conveyances. A vehicle carrying goods can now be intercepted only on specific intelligence and with the authorisation of an officer not below the rank of Joint Commissioner. Inspection, detention, or seizure can be taken when either the supplier or the recipient is located or registered in the state where the interception is made. No interception in transit states. And confiscation of goods under Section 130 will not apply to goods in transit. These changes address a long-standing grievance: the harassment of transporters by field officers in states that are neither the origin nor the destination of the goods.
Registration and Compliance simplification
The Council has recommended automatic registration for small suppliers on e-commerce platforms who do not possess a physical presence in a state. The electronic commerce operator’s warehouse can be declared as the principal place of business. This will allow small sellers to expand across states without setting up physical premises. It has also recommended automatic acceptance of amendments to registration particulars, except for the principal place of business. And automatic cancellation of registration on application, once pending returns are filed and dues paid. For small taxpayers with turnover up to Rs 5 crore, late fees for delayed filing of monthly returns will be waived if the return is filed by the end of the month in which it was due.
What This Means
The GST Council has not changed the tax rates. It has changed the relationship between the taxpayer and the tax administration. The withdrawal of arrest powers is the most significant of these changes. It tells the taxpayer that a tax dispute will not become a criminal matter unless the offence is serious and the amount is substantial. It tells the field officer that the power of arrest is not a tool for compliance.
And it tells the business community that the government is prepared to trust those who are willing to comply. The recommendations by the council will now be given effect through circulars, notifications, and law amendments. Behavioral economics explains why their design matters. Tax payers operate under a bounded rationality which means a small business cannot always navigate or direct complex rules. Loss aversion makes the prospect of the penalties, blocked credit and delayed refunds loom large.
Social norms also shape the compliance part; fair and predictable treatment can encourage cooperation, while arbitrary enforcement can weaken trust in the system. The administration is not immune to error either. Heuristics, or mental shortcuts and biases can cause an unusual transaction to be treated as wrongdoing before its context is understood. Clear reasons, opportunities to correct mistakes and proportionate checks can help guard against such errors. Ten years after GST was introduced, ease of doing business is not just about rates. It is about how the State treats the people who pay. A trust-based tax regime does not abandon enforcement. It makes enforcement lawful, proportionate and predictable—and gives honest compliance a fair chance to succeed.
Dr. Shweta Mohan is an Assistant Professor of Economics, National University of Study and Research in Law (NUSRL), Ranchi. Adhiraj Sahgal is a secondyear law student at the National University of Study and Research in Law (NUSRL), Ranchi. The views are personal.
