57th GST Council: Section 132 Prosecution Changes, ₹5 Crore Threshold & Withdrawal of GST Arrest Powers

Summary: The 57th GST Council Meeting has recommended significant reforms to the arrest and prosecution provisions under Sections 69 and 132 of the CGST Act, 2017, aimed at restricting criminal proceedings to serious GST offences and providing relief to taxpayers. The major proposals include increasing the statutory prosecution threshold to ₹5 crore, narrowing the scope of offences relating to fraudulent input tax credit under Section 132(1)(c), deleting the words “evades tax” from Section 132(1)(e), restricting the scope of offences involving confiscable goods under Section 132(1)(h), and omitting the service-related offence under Section 132(1)(i). The Council has also proposed reducing the maximum imprisonment to two years for specified offences involving amounts exceeding ₹5 crore but not exceeding ₹10 crore, permitting courts to impose imprisonment, fine or both, removing the presumptive minimum imprisonment of six months, and omitting GST officers’ arrest powers under Section 69. These recommendations could benefit taxpayers facing prosecution for fake invoices, fraudulent ITC, tax evasion and other specified offences, depending on the nature and monetary value of the allegations. However, offences involving substantial fraud may continue to attract prosecution, and relief from criminal liability will not automatically extinguish tax demands, interest or civil penalties. The proposed amendments are not yet operative statutory provisions, and their applicability to ongoing investigations, pending prosecutions and previous convictions will depend on the final enacted legislation, commencement date and applicable savings provisions. The separate proposed ₹10,000 threshold for specified GST demand notices must also be distinguished from the ₹5 crore criminal prosecution threshold.

Introduction

The 57th GST Council Meeting has proposed significant changes to the arrest and prosecution framework under the CGST Act, particularly Sections 69 and 132. These recommendations are important because GST prosecution cannot be examined merely by looking at the tax demand; the nature of the alleged offence, monetary threshold, ingredients of Section 132, stage of proceedings and applicable penal consequences must all be considered separately.

In this article, I have discussed the proposed amendments to the GST prosecution framework, their practical applicability, monetary thresholds, sentencing consequences and their possible impact on pending proceedings. In case you have any doubt after reading this article, or if you feel that any practical aspect requires further discussion, you may contact me at the contact details mentioned at the end of this article.

Legal position: 12 October 2026. The GST Council has made recommendations, not operative statutory amendments. The proposed benefits depend on the final enacted text, commencement date and applicable savings provisions. Ending prosecution, reducing a sentence, removing arrest powers and cancelling a GST demand are different legal consequences.

1. What Has Been Recommended?

The 57th GST Council has recommended significant reforms to the prosecution provisions under Section 132 of the CGST Act, 2017, with the objective of restricting criminal proceedings to more clearly defined and serious GST offences.

• Increasing the monetary threshold for prosecution to ₹5 crore, subject to the final statutory wording.
• Narrowing the scope of certain offences under Section 132(1).
• Reducing maximum imprisonment in specified cases.
• Giving courts greater flexibility to impose imprisonment, fine or both.
• Removing the presumptive minimum imprisonment of six months.
• Omitting GST officers’ powers of arrest under Section 69.

Important distinction: Relief from criminal prosecution does not automatically cancel tax, interest or civil penalties.

2. Clause-wise Comparison: Existing Law, Proposals and Benefits

The table compares the relevant existing offences with the recommendations and their practical consequences.

Clarification: Clauses 132(1)(g), (j) and (k) were already omitted by the Finance Act, 2023 (effective 1 October 2023). Their omission is not a fresh 57th GST Council recommendation.

3. Meaning and Practical Impact of the Four Major Amendments

The Council has proposed changes to Section 132(1)(c), (e), (h) and (i). The objective is to narrow criminal liability to more clearly defined offences and reduce prosecution based merely on GST disputes or broadly worded provisions. The examples below explain the distinction between criminal exposure and civil GST liability.

Section 132(1)(c) – Fraudulent Availment of Input Tax Credit (ITC)

Existing provision: Covers specified fraudulent ITC offences, including credit availed on invoices without actual supply and fraudulent availment without invoices or bills.

Proposed amendment: Restrict the clause to fraudulent ITC availment involving non-receipt of goods/services or absence of invoices/bills.

Practical example

A company claims ITC of ₹9 crore on purchases. It has genuine invoices, e-way bills and transportation records, proof of physical receipt and stock entries, and payments through banking channels. The supplier later fails to deposit GST, so the department disputes the ITC.

Benefit: If the purchases and invoices are authentic and supplies were actually received, the supplier’s failure to deposit GST does not, by itself, establish the fraudulent conduct targeted by the proposed Section 132(1)(c). This may strengthen the company’s defence against criminal prosecution under that clause.

What remains: ITC eligibility may still be disputed under Section 16. Tax, interest or applicable penalties can remain recoverable, and other independently established offences are not removed.

Section 132(1)(e) – Deletion of the Words “Evades Tax”

Existing provision: Contains a broad residual tax-evasion expression alongside fraudulent refund offences.

Proposed amendment: Delete the words “evades tax”; the fraudulent-refund part continues.

Practical example

A manufacturer issues regular invoices but pays GST at 12% rather than 18% because of a product-classification dispute. The department calculates short-paid tax of ₹7 crore and alleges evasion.

Benefit: Where prosecution relies solely on the residual words “evades tax” under clause (e), deletion of those words would remove that particular basis once the amendment becomes effective.

What remains: The classification demand may continue. A separately established offence, such as supply without invoice under clause (a) or collected-but-unpaid GST under clause (d), can still support prosecution.

Section 132(1)(h) – Activities Involving Confiscable Goods

Existing provision: Covers specifically listed knowing activities involving goods liable to confiscation, together with the broad phrase “or in any other manner deals with”.

Proposed amendment: Delete the quoted residual phrase.

Practical example – two contrasting cases

Case 1: A transporter knowingly transports goods liable to confiscation. Transporting is a specifically retained activity, so prosecution may still be possible if the statutory conditions are satisfied.

Case 2: A consultant merely reviews old documentation relating to such goods, without participating in any retained activity. Prosecution could not rest solely on the deleted catch-all words.

Benefit: Indirect or broadly alleged involvement outside the retained listed activities would no longer be covered solely by the deleted residual expression.

What remains: Specifically enumerated acts, including knowingly transporting or concealing goods, may remain punishable.

Section 132(1)(i) – Removal of the Service-related Offence

Existing provision: Covers knowingly receiving or dealing with certain supplies of services made in contravention of GST provisions.

Proposed amendment: Omit the entire offence clause.

Practical example

A company receives consultancy services from another business. The supplier has not complied with certain GST requirements, and prosecution is initiated against the recipient solely under Section 132(1)(i) for knowingly receiving or dealing with those services.

Benefit: Once the deletion takes effect, that particular offence clause would no longer provide an independent basis for a new prosecution.

What remains: Genuine questions of tax compliance or ITC eligibility may still arise. Fake invoices, fictitious services and other fraud offences under surviving clauses remain separately punishable. Older prosecutions require savings-law review.

Overall effect of these four amendments

• Clause (c): Stronger defence in genuine ITC transactions where the amended offence’s fraudulent ingredients are not established.
• Clause (e): Removal of the broad “evades tax” expression as an independent residual prosecution basis.
• Clause (h): Narrower liability for dealings with confiscable goods not falling within retained named acts.
• Clause (i): Removal of the separate irregular-services offence.

Legal clarification: These are proposed amendments, not amendments already in force. Application to prior conduct and pending cases will depend on enacted wording, commencement, savings provisions and the particular charges. Criminal prosecution relief does not itself cancel a GST demand.

4. Monetary Threshold and Proposed Imprisonment

Higher prosecution threshold

Following the Finance Act, 2023, the applicable amount-based prosecution threshold generally became more than ₹2 crore for most relevant offences, while a lower band of more than ₹1 crore continued for specified fake-invoice offences under clause (b). The Council now describes a general threshold of ₹5 crore; the PIB FAQ refers to amounts that exceed ₹5 crore.

Existing administrative prosecution guideline: It should, however, be noted that CBIC Instruction No. 04/2022-23 [GST-Investigation] dated 1 September 2022 already provides, as an administrative guideline, that prosecution should normally be launched where tax evasion, misuse of ITC or fraudulent refund exceeds ₹5 crore, subject to specified exceptions. The Council’s present recommendation is therefore materially different: it proposes to place the ₹5 crore threshold in the statutory prosecution framework itself rather than leave it merely as an administrative prosecution guideline.

• ₹3 crore: may fall below the proposed monetary threshold.
• Exactly ₹5 crore: does not exceed ₹5 crore.
• ₹5.01 crore: exceeds ₹5 crore, so a qualifying surviving offence may be prosecuted.

Offence-specific terms, particularly the interaction with Section 132(1)(f), require confirmation against the final enacted text.

Existing and proposed maximum imprisonment

Meaning of “amount”: It is the relevant tax evaded, ITC wrongly availed/utilised or refund wrongly obtained, determined under Section 132 (including specified GST components and cess, as applicable). It is not simply turnover or gross invoice value.

Why even a ₹12 crore case may benefit

A qualifying fraudulent-ITC case involving ₹12 crore would remain potentially prosecutable, with the five-year maximum retained. However, the proposal would give the court discretion to impose imprisonment, a fine alone, or both. The presumptive six-month minimum under Section 132(3) is also proposed to be removed.

Benefit: A fine-only sentence may become possible. It is a matter of judicial discretion—not an entitlement to escape imprisonment.

5. Practical Cases: Full, Partial or No New Prosecution Relief

Takeaway: An assessee may receive complete relief from an amount-based Section 132 charge, only reduced sentencing exposure, only arrest-related protection, or no fresh benefit. The answer depends on the exact offence and amount.

6. Combined Example: Several Benefits, Without Complete Immunity

A director is prosecuted for alleged wrongful ITC of ₹8 crore using fake invoices without any actual supply of goods. If the recommendations become law in the described form:

• Prosecution: The offence remains potentially prosecutable because the amount exceeds ₹5 crore and the alleged transaction is fraudulent.
• Maximum imprisonment: May fall from five years to two years in the ₹5–10 crore band.
• Sentencing discretion: The court may award imprisonment, a fine, or both.
• Minimum term: The presumptive six-month minimum would be removed.
• Arrest: GST officers’ Section 69 arrest power would be withdrawn.
• Civil liability: Tax/ITC recovery, interest and applicable penalties would not automatically disappear.

Final result: Significant relief concerning arrest and punishment could arise without acquittal, discontinuance of prosecution or cancellation of the GST demand.

7. Arrest, Other Subsections and Pending Prosecutions

Proposed omission of Section 69 – GST officer arrest power

The Council recommends complete omission of Section 69, under which authorised GST officers currently exercise specified statutory arrest powers. Qualifying Section 132 prosecutions could nevertheless continue before the competent criminal court on a complaint.

Omission of Section 69 would not necessarily eliminate powers arising under other laws or ordinary criminal-court processes. Consequential amendments to classification and bail provisions must be examined when legislation is enacted.

Other provisions and procedural stages

Important: There has been no announced universal retrospective operation or automatic abatement of pending Section 132 prosecutions. The effect of the proposed ₹5 crore threshold or omission/narrowing of particular offences on past conduct and pending prosecutions will depend upon the final amendment, commencement and applicable savings provisions.

A separate question arises where the amendment merely reduces punishment. Judicial principles concerning beneficial amendments to penal law may permit an accused in a pending proceeding to claim the benefit of a subsequently reduced punishment. The question whether an existing prosecution itself survives and the question whether a reduced punishment can apply should therefore be examined separately.

8. Civil Liability, Compounding and Separate ₹10,000 Notice Proposal

Criminal prosecution under Section 132 is separate from GST determination and recovery. Payment of tax, interest or penalty does not automatically terminate an existing criminal complaint.

Compounding or other settlement relief must satisfy the applicable statute, including Section 138 where relevant. It should specifically be noted that, after the Finance Act, 2023 amendment, a person accused of an offence under Section 132(1)(b) is excluded from compounding under Section 138.

The Council separately recommended a ₹10,000 minimum tax threshold (combined CGST, SGST, IGST and cess) for specified show-cause notices under Sections 73, 74 and 74A. It also recommended special treatment for specified notices and appeals involving less than ₹10,000 that remain pending when the provision comes into force.

This ₹10,000 proposal concerns civil demand notices—not the proposed ₹5 crore threshold for criminal prosecution. Its coverage and effect must be checked against the enacted wording.

9. Conclusion

The 57th GST Council proposes major restrictions on criminal enforcement under GST while retaining prosecution for significant fraudulent conduct. The main possible benefits are the exclusion of qualifying lower-value cases, narrower definitions of selected offences, reduced or more flexible sentencing, and withdrawal of GST officers’ Section 69 arrest power.

An assessee may obtain one type of benefit without obtaining the others. In particular, prosecution-related relief must not be confused with a waiver of the GST demand, interest or penalties. For existing investigations, pending trials and past convictions, any relief must be examined against the final law, its commencement and savings provisions.