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57th GST Council Meeting: Key Reforms in GST Prosecution, Penalties & Demand Proceedings

Summary: The article examines the recommendations attributed to the 57th GST Council Meeting held on 8 October 2026, focusing on changes to GST enforcement, prosecution, demand proceedings and penalties. The proposed reforms include omission of arrest powers under Section 69 of the CGST Act, enhancement of the monetary threshold for prosecution, modification of offences under Section 132 and rationalisation of punishment provisions. On dispute resolution, the recommendations include comprehensive guidelines for issuing notices and adjudication orders, adherence to principles of natural justice and a proposed ₹10,000 threshold for show cause notices under Sections 73, 74 and 74A. The article also discusses reduced penalties for voluntary compliance, removal of minimum penalties in non-fraud cases and reduction of the general penalty under Section 125. These proposals aim to promote proportionate enforcement, procedural fairness and reduced litigation. However, GST Council recommendations do not automatically amend the CGST Act, and their legal effect depends on subsequent legislative amendments and commencement provisions.

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57th GST Council Meeting: Key Recommendations on GST Enforcement and Dispute Resolution

The 57th GST Council Meeting, held on 8 October 2026, recommended significant changes to GST enforcement and dispute resolution mechanisms, with a focus on rationalising prosecution provisions, streamlining demand proceedings and reducing the burden of penalties.

Let’s discuss these key recommendations in detail, examining the relevant provisions of the CGST Act and the proposed changes.

1. Rationalisation of Arrest and Prosecution Provisions: A Shift towards a Trust-Based Tax Regime

1.1. Withdrawal of arrest powers:

Current Provision Proposed Change
Section 69 of the CGST Act, 2017 empowers the Commissioner to authorise the arrest of a person where there are reasons to believe that the person has committed specified offences under Section 132(1). These offences include:

  • Supply of goods/ service without issuance of invoice with intention to evade tax
  • Issuance of invoice without actual supply of goods/ services leading to wrongful availment/ utilisation of input tax credit/ refund
  • Fraudulent availment of input tax credit
  • Non-payment of collected tax to the government within three months from the due date
The council has now recommended omission of section 69 of the CGST Act, 2017.

1.2. Monetary threshold raised for Prosecution

Current Provision Proposed Change
Currently, as per section 132(1)(l)(iii), prosecution can be invoked where the amount of tax evaded or input tax credit wrongly availed/ utilised or refund wrongly taken exceeds 1 crore but does not exceed ₹2 crore, on attempt/ commission of an offence being issuance of invoice without actual supply of goods/ services The council has now proposed raise in the limit to 5 crore from 1 crore. Consequently, the punishment provisions under Section 132(1)(l)(iii) may require consequential rationalisation to align the applicable punishment thresholds with the proposed changes.

1.3. Omission of / deletion in clauses of section 132(1)

(c) avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;

(e) evades tax or fraudulently obtains refund and where such offence is not covered under clauses (a) to (d);

(h) acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;

(i) receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;

1.4. Rationalisation of monetary punishment

Amount of punishment for various offences under section 132 of the CGST Act, 2017 has been proposed to be rationalised.

2. Dispute Resolution Reforms: Rationalisation of Demand Proceedings

2.1. Standardisation of Demand Notices and Adjudication Proceedings

The Council recommended issuing comprehensive guidelines to tax officers to streamline the process of issuance of notices and orders, covering below issues –

  • Quality and timely issuance of Notices/ Orders
  • Proper invocation of grounds of fraud/ wilful misstatement or suppression of facts
  • Adherence to principal of Natural Justice

2.2. Minimum Threshold for Issuance of Show Cause Notices

The Council recommended amendments to below sections of the CGST Act, 2017, to introduce a minimum monetary threshold of ₹10,000 (aggregate of CGST, SGST, IGST and Compensation Cess) for issuing show cause notices.

Section 73. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any willful-misstatement or suppression of facts

Section 74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts

Section 74A. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason pertaining to Financial Year 2024-25 onward

3. Rationalisation of Penalties and Incentives for Voluntary Compliance

3.1. Penalty to be treated as a charge

The Council recommended a provision to treat the penalty amount as a charge where the taxpayer voluntarily pays the full tax liability, along with applicable interest and penalty, within the prescribed time limit.

3.2. Reduced penalty of 5% in non-fraud cases

A reduced penalty of 5% was recommended where the taxpayer discharges the tax liability along with applicable interest within 30 days of the adjudication order under Section 73, or within 60 days under Section 74A.

3.3. Removal of minimum penalty in non-fraud cases

Current Provision Proposed Change
Currently, section 73 provides that while determining the penalty, an amount equivalent to ten per cent of tax or ten thousand rupees, whichever is higher, shall be considered. The council has recommended removal of condition of minimum penalty of Rs. 10,000/-.
Currently, as per section 74A, penalty shall be equivalent to ten per cent of tax or ten thousand rupees, whichever is higher, in cases other than fraud or wilful-misstatement or suppression of facts.

3.4. Reduction in general penalty under Section 125

Current Provision Proposed Change
Currently, as per section 125, any person, who contravenes any of the provisions of this Act or any rules made thereunder for which no penalty is separately provided, shall be liable to a penalty which may extend to Rs. 25,000. The council has recommended reducing the maximum limit to Rs. 10,000 from Rs. 25,000.

Conclusion

The recommendations of the 57th GST Council Meeting signal a move towards rationalising GST enforcement and dispute resolution mechanisms. The proposed withdrawal of arrest powers under Section 69, increase in the monetary threshold for prosecution, improved guidelines for demand and adjudication proceedings, and rationalisation of penalties reflect an emphasis on procedural fairness, proportionate enforcement and reduced litigation.

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Disclaimer: This article discusses recommendations made at the 57th GST Council Meeting. Recommendations do not, by themselves, amend the law. Their legal effect is subject to the relevant legislative amendments and commencement provisions.

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Author Info

Shruti Garg
Name: Shruti Garg
Qualification: CA in Practice
Location: New Delhi, Delhi
Articles Published: 2
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