57th GST Council Meeting Update: Arrest Powers Removed

From Rate Cuts to Process Reform: What the 57th GST Council Meeting Was About

If the 56th meeting last year was about rates, the 57th meeting was about how the department deals with taxpayers. The Council, chaired by Union Finance Minister Smt. Nirmala Sitharaman in New Delhi on 8 October 2026, turned its attention to registration, returns, refunds, adjudication, enforcement and export facilitation.

For businesses that have spent years answering mechanical notices, chasing stuck refunds or getting trucks released at check-posts, this is the more consequential package. Several recommendations directly address grievances that our clients raise with us every week.

Below, we take the recommendations area by area: what changes, what it means in practice, and where we think caution is still needed.

No More Arrests Under GST? Section 69 Omission and the New ₹5 Crore Prosecution Threshold

The headline recommendation is the complete withdrawal of arrest powers by omitting Section 69 of the CGST Act. Alongside it, the Council has recommended a recalibration of Section 132:

• Prosecution threshold raised from ₹1 crore to ₹5 crore.
• Clause (i) of Section 132(1) omitted, the words "evades tax" deleted from clause (e), and "or in any other manner deals with" deleted from clause (h).
• Clause (c) narrowed to cover only fraudulent availment of ITC without receipt of goods or services, or without an invoice or bill.
• Punishments rationalised across the various offences.

The general penalty under Section 125, the residuary penalty for contraventions with no specific penalty, will come down from ₹25,000 to ₹10,000.

TBA's view: This is the most significant shift in GST's enforcement philosophy since 2017. Arrest powers have been a source of leverage in investigations, often prompting "voluntary" deposits under pressure. Their removal changes the negotiating dynamic in search and summons proceedings. That said, fake-invoice and bogus-ITC cases remain squarely prosecutable under the narrowed clause (c), and exposure under other statutes is not touched by this change. Businesses should not read this as decriminalisation of ITC fraud.

Fewer Show Cause Notices, Lower Penalties: Changes to Sections 73, 74, 74A and Appeals

The Council has recommended a circular laying down guidelines on the quality and timeliness of SCNs, adjudication orders and appeal orders. Importantly, it specifically requires that fraud, wilful misstatement or suppression be invoked only on the merits of each case, and that personal hearings be properly conducted.

Amendments to Sections 73, 74 and 74A are also recommended:

• ₹10,000 minimum threshold for SCNs (CGST + SGST + IGST + Cess combined). Pending notices and appeals below this amount will be decided as if the threshold had applied when the notice was issued.
• Penalty deemed a "charge" where full tax, interest and penalty are voluntarily paid within the specified time.
• Reduced penalty of 5% in non-fraud cases where tax and interest are paid within 30 days (Section 73) or 60 days (Section 74A) of the order.
• Minimum penalty of ₹10,000 removed in non-fraud cases.

For penalty-only orders, pre-deposit under the provisos to Sections 107(6) and 112(8) will be capped at ₹40 crore (₹20 crore CGST + ₹20 crore SGST/UTGST) for both first appeal and GSTAT.

The Council also recommended a validation clause for notices struck down by courts for covering multiple financial years.

Rule 86A gets a hearing. Taxpayers will be able to file an objection against blocking of the electronic credit ledger and be heard before the officer decides. Until now, the only remedy against an arbitrary block was a writ petition.

TBA's view: The circular on SCN quality could prove more useful in practice than the statutory changes. A formal CBIC instruction that the extended period cannot be invoked mechanically gives taxpayers a ready ground of challenge in replies and appeals. On the other hand, the proposed validation clause for multi-year notices will cut against taxpayers who have won on that ground. Its retrospective reach needs close watching when the Finance Bill text appears.

E-Way Bill Interception: Only on Specific Intelligence, No Seizure in Transit States

Amendments to Sections 68, 129 and 130 are recommended so that:

1. A conveyance can be intercepted only on specific intelligence and with authorisation of an officer not below Joint Commissioner.
2. Inspection, detention or seizure can follow only where the supplier or recipient is located or registered in the State of interception. No interception in transit States.
3. Where no e-way bill has been generated, or the conveyance carries no document showing origin or destination, goods can be inspected, detained or seized irrespective of jurisdiction.
4. Confiscation under Section 130 will not apply to goods or conveyances in transit.

TBA's view: Roadside detentions under Section 129, often over clerical e-way bill errors, minor quantity variances or vehicle changes, are among the most frequent and costly disputes for traders and transporters. A requirement of specific intelligence and senior-level authorisation should end random checks. The exception for movements without any e-way bill or documentation is sensible, but expect disputes over what counts as "not carrying any document" where an e-way bill exists but is defective. Taxpayers facing MOV-series proceedings today should watch for transitional provisions, since pending confiscation cases involving transit goods may be affected.

Faster GST Refunds and Wider ITC: Automated Sanction, Capital Goods and Input Services

Automated refunds (Section 54). Refunds of excess cash ledger balance, zero-rated supplies and inverted duty structure move to system-based processing in two phases:

• Phase 1: full cash-ledger refunds sanctioned automatically; 90% provisional refund on zero-rated and inverted duty claims sanctioned by the system on a risk basis; acknowledgement or deficiency memo within 10 days instead of 15, failing which acknowledgement is deemed.
• Phase 2: automated acknowledgement, and full automated sanction of zero-rated refunds after adjusting pending dues, again risk-based.

RFD-01 will capture data in system-readable form, ending scanned-document uploads for zero-rated and inverted duty claims. The 1.5 times cap in Rule 89(4)(C) on zero-rated turnover of goods will go. The ₹1,000 threshold in Section 54(14) will apply to the combined CGST, SGST/UTGST and IGST amount. Section 115 will be made a standalone provision on interest on refund of pre-deposit.

Refund of ITC on input services and capital goods. Section 54(3) will be amended to allow:

• refund of accumulated ITC on input services in inverted duty cases, for ITC availed on or after 1 November 2026; and
• refund of ITC on capital goods in both zero-rated and inverted duty cases, spread over 60 months, for ITC availed on or after 1 April 2027.

Section 17(5) relaxed. Blocked credit restrictions will be removed on, among others, outdoor catering, health and life insurance, telecom towers, pipelines laid outside factory premises, free samples, and goods destroyed or written off on expiry of shelf life as required by law.

TBA's view: For exporters and inverted-duty manufacturers, the input services and capital goods refund is the long-awaited fix to a restriction the Supreme Court upheld in VKC Footsteps (2021). Note the prospective cut-off dates: accumulated credit on input services availed before 1 November 2026 will not qualify. Businesses planning capital expenditure should factor the 1 April 2027 date and the 60-month spread into their cash-flow models.

Export of Services and SEZ/FTWZ Deliveries: Zero-Rating Gets Clearer

Four recommendations matter for exporters:

1. Services to own foreign branches can be exports. Sub-clause (v) of Section 2(6) of the IGST Act will be omitted. Supplies by an Indian entity to its foreign office or branch, treated as "distinct persons" under Explanation 1 to Section 8, will no longer be disqualified from being an export of services.
2. Section 13(3)(a) of the IGST Act omitted. Where goods are made physically available by a foreign recipient (for repair, testing, job work and similar services), place of supply will default to the recipient's location under Section 13(2), making these services eligible as exports.
3. Overseas buyer, delivery in SEZ/FTWZ. A new explanation to Section 16(1) will deem a supply to an overseas buyer, delivered in an SEZ or FTWZ and paid for in convertible foreign exchange (or INR where RBI permits), to be a supply to the SEZ/FTWZ, and therefore zero-rated.
4. Circular on export realisation in foreign exchange or permissible INR.

TBA's view: Point 3 is directly relevant to the FTWZ and SEZ structures we advise on. Today, when an Indian manufacturer sells to a foreign buyer but delivers to that buyer's stock in an FTWZ, zero-rating is often questioned because the SEZ unit is not the contracting party. The deeming fiction removes that uncertainty and strengthens the case for FTWZ-based regional distribution hubs. Point 2 should open up the repair and testing services segment, where Section 13(3)(a) has long denied export benefit. Point 1 removes a significant obstacle for IT/ITeS and professional services firms billing their own overseas branches or offices, though transfer pricing documentation will matter more than ever.

GST Registration and Return Filing: Auto-Amendments, Auto-Cancellation and Fewer Mismatch Notices

Registration. A comprehensive circular and FAQs will specify the documents required, and REG-01 will carry drop-down lists of prescribed documents, aimed at cutting arbitrary queries and rejections. Amendments to all registration particulars except the principal place of business will be auto-approved (including PPoB for Rule 14A registrants). Cancellation applications in REG-16 will be auto-accepted once returns and dues are cleared, in two phases, and system-based suo motu cancellation and revocation will replace several officer-driven grounds under Rule 21.

E-commerce sellers. A new Rule 14B will let small sellers supplying through e-commerce operators register in a State where they have no premises by declaring the operator's warehouse as their PPoB, subject to an ITC pass-on limit of ₹2.5 lakh per month.

Returns. From the April 2027 return period, new facilities and rules (Rules 60(6A), 61(1A), 61(1B), 86C and 86D) will help align GSTR-3B with GSTR-1 and GSTR-2B, track RCM liability and credit reversals, and allow credit notes to be kept pending on IMS. DRC-03 will capture the underlying invoice. The mechanism will first be placed for public consultation.

Small taxpayers. Late fee under Section 39(1) will be waived for taxpayers with turnover up to ₹5 crore if the return is filed by the end of the month in which it was due. The Council also approved in principle an optional Annual Return Quarterly Payment (ARQP) scheme for B2C-only businesses with turnover up to ₹5 crore.

TBA's view: The return alignment changes are, in our experience, where most system-generated notices (DRC-01B, DRC-01C and ASMT-10) originate. If GSTR-3B can be corrected to match GSTR-1 and 2B within the return cycle, much of this mechanical litigation should fall away. Businesses should use the consultation window to flag practical issues.

GST Rate Clarifications and Exemptions from the 57th Meeting

The Council made no broad rate changes, but recommended several clarifications and exemptions. The more significant ones:

Also of note: transfer of title in IPRs, temporary or permanent, will uniformly be treated as a supply of services; and Rule 96(10) will be omitted with effect from 23 October 2017, in line with the Supreme Court's decision.

What Businesses Should Do Now: TBA's Practical Takeaways

The 57th meeting signals a clear policy direction: less discretion at the field level, more automation, and enforcement reserved for genuine fraud. But a recommendation is not a law. Most of these changes need amendments to the CGST and IGST Acts, likely through the Finance Bill, or notifications and circulars. Until then, current provisions continue to apply.

In the meantime, we suggest:

• Do not let pending proceedings lapse in the expectation of relief. Keep replying to notices and filing appeals within time; transitional provisions may or may not extend to your case.
• Review pending SCNs and appeals below ₹10,000: these should drop under the proposed retrospective treatment once notified.
• Re-check refund claims on inverted duty and zero-rated supplies, and map input services ITC from 1 November 2026 separately.
• Revisit SEZ/FTWZ delivery models with overseas buyers, and export of services to your own foreign branches, once the IGST amendments are notified.
• Map Rule 86A blocks currently in force and prepare objections for when the hearing mechanism comes into effect.
• Participate in the returns consultation if your business has recurring GSTR-3B mismatches.

The FAQs the government has said it will issue, and the notification texts, will settle many of the open questions. We will update this note as they come out.