GST Council Overhauls Enforcement Rules: Officers’ Arrest Powers Stripped, Prosecution Cap Raised to ₹5 Crore

Union Finance Minister Nirmala Sitharaman announced major compliance and enforcement reforms following the 57th GST Council meeting on Thursday, stripping GST officers of arrest powers in non-cognizable cases and raising the threshold for criminal prosecution fivefold to ₹5 crore. Speaking at a press conference in New Delhi, Sitharaman confirmed that the Council made no changes to GST tax rates, keeping the current rate structure unchanged.

Going forward, any potential changes to tax rates will happen strictly once a year during a dedicated session, providing businesses with clear financial predictability.

Scrapping Arrest Powers and Decriminalising Delays

The Council approved sweeping changes to enforcement practices to prevent coercive measures against businesses. Tax officials will no longer hold the authority to arrest taxpayers in specified non-cognizable cases, restricting power abuse and administrative interference.

Alongside stripping these arrest powers, the monetary limit for initiating criminal prosecution against tax defaulters was increased from ₹1 crore to ₹5 crore. General procedural penalties for compliance oversights were also cut from ₹25,000 to ₹10,000. Under the new guidelines, late tax filings, mathematical calculation errors, or delayed tax payments will attract interest charges and recovery proceedings, but will no longer trigger criminal action.

Key Relief on Input Tax Credit for Buyers

In a move addressing long-standing trader demands, the GST Council approved a key legal amendment under Section 16(2)(c) to protect genuine buyers across supply chains.

Under the amended rule, Input Tax Credit (ITC) claimed by an honest buyer cannot be blocked, frozen, or reversed simply because an upstream supplier higher up in the supply chain defaulted on tax payments or passed fake credit. "Genuine buyers who have paid their tax and hold valid invoices should not suffer due to defaults committed by third-party suppliers," Sitharaman noted during the briefing.

Strict Jurisdictional Oversight for Seizure of Goods in Transit

Addressing long-standing issues regarding arbitrary detentions during transportation, the Council approved new procedural guidelines for the interception and seizure of goods in transit.

Under the revised framework, goods transported across state lines can be inspected or detained by officers of either the origin (supplier) state or the destination state. However, to prevent harassment and unchecked enforcement on highways, any specific or extraordinary seizure action will now require prior written approval from an officer not below the rank of Joint Commissioner.

Faceless CGST and E-Commerce Simplification

The Council rolled out administrative simplifications aimed at easing the tax compliance burden on small businesses and digital sellers:

Faceless CGST Rollout: Central GST procedures will transition toward a faceless tax administration system to minimise physical interactions with officials and eliminate local discretionary practices.

• E-Commerce Onboarding: Registration rules for small merchants selling products through digital platforms have been simplified to facilitate wider market access.

• Streamlined Tax Refunds: The Council introduced accelerated processing frameworks for faster release of pending tax refunds, aiding cash flow for exporters and businesses facing inverted duty structures.

• Annual Rate Review Schedule: All future tax rate revisions will be consolidated into a single annual exercise taking effect on April 1 of each financial year.

Official Implementation Timeline

Addressing reporters, Finance Minister Nirmala Sitharaman confirmed that all structural, enforcement, and compliance measures approved during this session will officially take effect on April 1, 2027. Tax authorities and state departments will use the intervening period to update digital infrastructure, align state laws, and train field staff on the new procedural frameworks.