Can a business owner be arrested for a GST-related offence? Will the government increase the amount involved before criminal prosecution can begin? These questions have become important following the 57th GST Council Meeting held on 8 October 2026.
The Council recommended significant changes to GST arrest and prosecution provisions. The main proposals include removing arrest powers under Section 69 of the Central Goods and Services Tax (CGST) Act, increasing the prosecution threshold from ₹1 crore to ₹5 crore, narrowing certain offences under Section 132, and giving courts greater flexibility when deciding punishments.
These recommendations aim to make GST enforcement more proportionate while retaining action against serious tax fraud and evasion.
However, the recommendations should not be treated as changes that are already legally effective. Amendments to the law must be brought into force through the relevant legislative and official processes. Until then, the existing legal provisions continue to apply.
This article explains the proposed changes in simple language, their possible impact on businesses, and the precautions taxpayers should take.
1. What Is the Difference Between GST Arrest and Prosecution?
Before understanding the recommendations, it is important to distinguish between arrest and prosecution.
What is arrest under GST?
Arrest involves taking a person into custody under the applicable legal authority. Under the existing GST framework, Section 69 of the CGST Act provides the legal basis for authorising arrests in specified circumstances connected with offences under Section 132.
Arrest is not a routine consequence of every GST mismatch, delayed return or tax dispute. The applicable legal conditions and the nature of the alleged offence matter.
What is prosecution under GST?
Prosecution is a criminal legal proceeding before a competent court in relation to an alleged offence.
Under the existing framework, certain offences listed under Section 132 can lead to prosecution if the statutory conditions are met. Depending on the offence and the applicable provision, a person convicted by a court may face imprisonment, a fine, or both.
In simple terms, arrest concerns custody under legal authority, whereas prosecution concerns criminal proceedings before a court. The two concepts are connected, but they are not interchangeable.
2. GST Council Recommends Removing Arrest Powers Under Section 69
One of the most significant recommendations from the 57th GST Council Meeting is the proposed complete withdrawal of GST arrest powers by omitting Section 69 of the CGST Act, 2017.
If implemented as recommended, this would remove the statutory arrest mechanism under the GST law.
Why has this change been recommended?
The Council's recommendations seek to establish a more trust-based tax administration while retaining the ability to pursue serious offences through the legal system.
Removing arrest powers would change the way GST-related criminal enforcement is handled. However, it would not automatically eliminate criminal prosecution or remove every consequence of a GST violation.
Example
Suppose a business is accused of committing a serious GST offence. Under the proposed framework, GST arrest powers would be removed once the relevant amendment takes effect.
However, if the alleged conduct falls within the offences that remain prosecutable under the amended law, proceedings before the competent court may still be possible.
Important: As of the Council's announcement, the recommendation itself does not remove the existing statutory arrest powers. The relevant legal amendment must take effect first.
3. GST Prosecution Threshold Proposed to Increase from ₹1 Crore to ₹5 Crore
The Council recommended increasing the monetary threshold for prosecution from ₹1 crore to ₹5 crore.
The purpose is to reserve criminal prosecution under the specified provisions for cases involving larger amounts while narrowing the scope of certain offences.
What does the proposed ₹5 crore threshold mean?
Under the existing framework, the relevant prosecution provisions use a lower monetary threshold, subject to the particular offence and statutory conditions.
The recommendation would raise that threshold to ₹5 crore.
For example, consider a case involving an alleged GST offence with a tax amount of ₹80 lakh. Under the proposed higher threshold, that amount would fall below ₹5 crore.
However, this does not mean the business would automatically be free from tax recovery, interest, penalties, investigation or other proceedings. The legal treatment depends on the facts, the applicable provisions and the final amendment.
Similarly, a case involving an amount above ₹5 crore would not automatically result in prosecution. The relevant offence, evidence and statutory conditions would still need to be considered.
Does ₹5 crore mean all GST offences below that amount are ignored?
No. The threshold concerns prosecution under the relevant criminal provisions. It does not remove the general obligation to pay GST correctly or prevent the department from taking other legally permitted action.
A business may still have to pay tax, applicable interest and penalties even if the facts do not meet the proposed prosecution threshold.
4. Certain GST Offences Under Section 132 May Be Narrowed
Section 132 of the CGST Act lists offences that can attract criminal consequences when the relevant legal conditions are satisfied.
The 57th GST Council recommended changes to specific clauses of Section 132(1). These include omitting clause (i), narrowing the language of clause (e) and clause (h), and changing clause (c) to focus on fraudulent availment of input tax credit without receiving goods or services or without an invoice or bill.
Here is what the recommendations mean in simpler terms.
A. Proposed omission of Section 132(1)(i)
This clause relates to the supply of services in contravention of the Act. The Council recommended removing it because the offence may be difficult to quantify and could be subject to differing interpretations.
If implemented, the removal would narrow the list of offences that can attract prosecution under that clause.
B. Proposed change to Section 132(1)(e)
The Council recommended deleting the words “evades tax” from this clause so that it would be confined to fraudulently obtaining a refund.
The intention is to make the offence more specific rather than allowing broad language to cover conduct beyond the intended scope.
C. Proposed change to Section 132(1)(h)
The Council recommended removing the words “or in any other manner deals with” from the clause.
The proposed change would narrow the wording to the specific acts listed in the provision rather than retaining the broader phrase.
These changes are intended to make the scope of certain criminal offences clearer. Their precise legal effect will depend on the final wording of the amendments.
5. Fraudulent Input Tax Credit Cases Would Remain Important
Input tax credit (ITC) allows eligible businesses to claim credit for GST paid on qualifying business purchases, subject to the law.
The Council recommended amending Section 132(1)(c) to cover the offence of fraudulently availing ITC without receiving goods or services or without an invoice or bill.
This recommendation is important because fake invoices and credit claims unsupported by actual supplies can undermine the GST system.
Example
Suppose a business claims ITC using invoices for goods that were never supplied. The claim may be fraudulent, depending on the evidence and circumstances.
The proposed changes are not intended to make such conduct automatically permissible. Rather, the Council recommended a more specifically defined offence relating to fraudulent ITC claims in the circumstances described.
Businesses should maintain genuine purchase records, valid invoices, proof of receipt of goods or services, and other supporting documents required by the applicable provisions.
6. Punishments Under GST Prosecution May Become More Flexible
The Council also recommended changes to the punishment framework under Section 132.
According to the official FAQ, the recommendations include changes to the maximum imprisonment terms for specified tax amounts, allowing courts to impose a fine instead of mandatory imprisonment in applicable cases, and removing the minimum imprisonment requirement of six months.
The proposed punishment framework includes the following:
| Amount involved | Proposed maximum punishment |
|---|---|
| More than ₹5 crore and up to ₹10 crore | Imprisonment up to 2 years, or fine, or both |
| More than ₹10 crore | Imprisonment up to 5 years, or fine, or both |
These proposed punishment categories should be read alongside the relevant offence and statutory conditions. They do not mean that every case involving these amounts will lead to the maximum punishment.
What does removing mandatory imprisonment mean?
The Council recommended changing the punishment language so that courts would have discretion to impose imprisonment, a fine, or both, as permitted under the final provision.
It also recommended removing the minimum six-month imprisonment requirement.
If implemented, this would give courts greater flexibility when deciding the appropriate punishment for a qualifying offence. It would not eliminate the possibility of imprisonment where the amended law permits it.
7. Will Ordinary GST Errors Lead to Criminal Prosecution?
Not every GST error amounts to a criminal offence.
Businesses can encounter genuine mistakes while preparing returns, reconciling purchase records, calculating tax liability or claiming ITC. The legal consequences depend on the nature of the error, the facts, the relevant statutory provision and whether there is evidence of deliberate wrongdoing.
For example, a business may report an incorrect figure in a return because of a data-entry mistake. That situation is different from knowingly using fake invoices to claim ITC.
The Council's recommendations aim to narrow specified offences and raise the prosecution threshold. However, businesses should not assume that every mistake is harmless or that every case below ₹5 crore is exempt from all legal consequences.
Where an error is identified, the business should examine the applicable correction procedure, calculate any tax and interest payable, and take action under the law.
8. Will the Proposed Changes Cancel Existing GST Cases?
The Council's recommendations do not automatically cancel existing investigations, notices, prosecutions or other proceedings.
Whether a particular change applies to a pending matter will depend on the final amendment, its commencement date, any transitional provisions and the legal circumstances of the case.
For example, if a prosecution is already pending, the business should not assume that the proposed ₹5 crore threshold automatically ends the proceedings. The applicable legal provisions and any rules governing pending cases must be examined.
Similarly, an existing GST notice may involve tax recovery or a penalty rather than criminal prosecution. Changes to arrest or prosecution provisions do not automatically cancel those separate obligations.
If your business is involved in a pending matter, obtain advice based on the actual notice, complaint, order and applicable law.
9. What Should Business Owners Do Now?
The proposed changes may reduce certain criminal enforcement risks once implemented, but they do not remove the need for proper GST compliance.
Businesses should take the following practical steps.
Maintain accurate GST records
Keep sales and purchase invoices, credit notes, payment records, e-way bills and other relevant documents organised.
Reconcile GST returns regularly
Compare GSTR-1, GSTR-3B, relevant ITC information and the books of accounts. Investigate differences rather than allowing them to remain unresolved.
Verify ITC claims
Ensure that ITC claims meet the applicable requirements and are supported by genuine transactions and appropriate records.
Respond to official notices
Read the notice carefully, identify the legal provision and deadline, and provide a response through the appropriate process. Do not ignore a notice simply because a proposed amendment may offer future relief.
Monitor the implementation of recommendations
Check official notifications and amendments before changing your compliance approach. A recommendation announced by the Council is not, by itself, an amendment to the CGST Act.
Seek professional advice for serious allegations
If a case involves suspected fraud, fake invoices, disputed ITC or possible prosecution, a qualified tax or legal professional can help assess the facts and explain the available options.
Businesses operating in Delhi, Noida, Gurugram and the wider Delhi NCR region should follow these steps while tracking the official implementation of the proposed reforms.
How FilingSuvidha Can Help ?
GST notices and enforcement matters can involve several different issues, including tax liability, interest, penalties, ITC eligibility and criminal prosecution. Understanding which provision applies is an important first step.
FilingSuvidha supports businesses with GST registration, return filing and related compliance services. Reviewing your records and the relevant notice can help you identify discrepancies and understand the compliance steps that may be required.
For GST compliance support, contact FilingSuvidha.
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Phone: 096259 95981
Email: lsaadvisory3@gmail.com
Our focus is on transparent pricing and on-time delivery.
Frequently Asked Questions
1. Has the GST Council removed arrest powers under Section 69?
The 57th GST Council recommended removing arrest powers by omitting Section 69 of the CGST Act. The recommendation must be implemented through the relevant legal process before it takes effect.
2. What is the proposed GST prosecution threshold?
The Council recommended increasing the monetary threshold for prosecution from ₹1 crore to ₹5 crore, subject to the relevant offences and statutory conditions.
3. Will businesses below ₹5 crore face no GST action?
No. The proposed threshold concerns prosecution under the relevant criminal provisions. Tax recovery, interest, penalties and other lawful proceedings may still apply.
4. Will fake ITC claims be allowed under the proposed changes?
No. The Council recommended narrowing Section 132(1)(c) to cover specified fraudulent ITC claims made without receiving goods or services or without an invoice or bill. Businesses must continue complying with ITC requirements.
5. Will imprisonment be removed for all GST offences?
No. The Council recommended giving courts greater flexibility over punishments and removing the minimum six-month imprisonment requirement. The final law will determine the offences and punishments that apply.
6. Do the recommendations apply to pending GST prosecution cases?
Not automatically. Their effect on pending cases will depend on the final legal amendments, commencement dates and applicable transitional provisions.
7. Where can businesses check the latest official update?
Businesses should review the Ministry of Finance announcement, the official PIB FAQ on GST arrest and prosecution reforms, and subsequent notifications or amendments issued by the relevant authorities.
Disclaimer
This article is for general informational and educational purposes only and does not constitute legal, tax or professional advice. It explains recommendations announced at the 57th GST Council Meeting held on 8 October 2026. The recommendations do not automatically amend the law. Their legal effect depends on the relevant amendments, notifications, commencement dates and applicable provisions. Businesses facing investigations, notices or prosecution-related matters should obtain advice based on their specific circumstances.