GST Council Scraps Arrest Power and Raises Prosecution Limit

The GST Council has recommended the removal of arrest provisions under GST and approved faster system-based processing of refunds. The Ministry of Finance announced these process and dispute resolution reforms following the 57th GST Council meeting held on 08 OCT 2026. The recommendations aim to simplify registration, returns, refund claims, and compliance processes for taxpayers.

Prosecution and Penalty Changes

The 57th GST Council meeting recommended key legal reforms to improve trade facilitation. The Council recommended removing arrest provisions under GST entirely. The Council also recommended raising the prosecution threshold from ₹1 crore to ₹5 crore. Furthermore, the Council recommended reducing the general penalty under GST from ₹25,000 to ₹10,000. The recommended measures reduce criminal liability and lower financial penalties for taxpayers and businesses operating under the GST framework.

Automated Refunds and Processing Timelines

The GST Council recommended amendments in section 54 of the CGST Act, 2017 and relevant CGST Rules, 2017 to implement system-based processing of refunds. Under Phase 1, the portal will automatically sanction full refunds for excess balance in the electronic cash ledger without officer intervention. The portal will also sanction 90% of provisional refunds automatically for zero-rated supplies and inverted duty structure claims based on system risk evaluation. The time limit for issuing an acknowledgement or deficiency memo will drop from 15 days to 10 days, after which deemed acknowledgement applies. Under Phase 2, the system will automatically acknowledge and sanction full refund claims after verifying risk and adjusting pending dues. For refund thresholds, an amendment in section 54(14) specifies that the ₹1,000 limit applies to the total refund amount under CGST, SGST/UTGST, and IGST taken together.

Registration and Return Reforms

The Council recommended inserting rule 14B in the CGST Rules, 2017 for small sellers on Electronic Commerce Operator platforms. Sellers passing on input tax credit of not more than ₹2.5 lakh per month can register automatically by declaring an e-commerce warehouse as their Principal Place of Business. Amendments to rule 19 will provide automatic acceptance of registration details on the portal, except for the Principal Place of Business. Automatic cancellation of registration under FORM GST REG-16 will apply when pending returns are filed and dues are paid, provided monthly credit passed does not exceed ₹2.5 lakh or FORM GSTR-10 is filed on time. Return reconciliation reforms involving FORM GSTR-1, FORM GSTR-1A, FORM IFF, FORM GSTR-3B, rule 86C, and rule 86D will come into force from the return of April, 2027.

Sources

• Recommendations of the 57th Meeting of the GST Council — Ministry of Finance (checked 9 Oct 2026)