GST Council may scrap officers’ arrest powers, raise prosecution threshold to Rs 5 crore

The GST Council is likely to consider a sweeping overhaul of the tax enforcement framework at its October 7 meeting, including a proposal to take away the power of GST officers to directly arrest taxpayers and raise the threshold for criminal prosecution from Rs 1 crore to Rs 5 crore. The proposals form part of the next phase of GST reforms aimed at reducing criminalisation of routine tax disputes and addressing industry concerns over enforcement overreach.

Under the proposal being considered, GST authorities would no longer be able to directly arrest a taxpayer using their administrative powers. An arrest would instead require judicial intervention, potentially marking one of the most significant changes to GST enforcement since the indirect tax regime was introduced in July 2017.

Arrest powers may go

At present, Section 69 of the Central GST Act empowers the Commissioner to authorise the arrest of a person when there are reasons to believe that specified serious offences under Section 132 have been committed. These include certain cases involving fraudulent input tax credit and fake invoicing. I

The proposal before the Council would substantially alter that architecture by shifting the power to order an arrest away from tax officials. If approved, legislative amendments would be required before the change could take effect.

The move follows months of consultations between the Centre, states and industry representatives over concerns that arrest provisions designed to tackle serious tax fraud were being invoked in disputes that businesses argued should have remained within the civil tax-administration framework.

Rs 5 crore threshold

Another major proposal is to increase the threshold for launching criminal prosecution from Rs 1 crore to Rs 5 crore. The objective is to reserve criminal proceedings for serious cases of deliberate fraud rather than ordinary tax disagreements.

Disputes involving issues such as classification of goods and services, valuation and interpretation of input tax credit provisions could consequently be kept outside the criminal process. Such cases would instead be dealt with through tax recovery, interest and financial penalties.

The proposed distinction is significant because disagreements over GST interpretation can involve large amounts even when there is no allegation of deliberate fraud. Industry has long argued that treating interpretational disputes on the same footing as fraudulent invoicing or intentional tax evasion creates uncertainty for businesses.

Focus on serious fraud

The proposed relaxation would not mean an end to criminal action against GST fraud. Cases involving deliberate deception, fake invoices, fraudulent ITC claims and other serious offences could continue to attract criminal proceedings under the applicable legal framework.

The policy direction, however, is towards separating deliberate fraud from disputes arising from interpretation or compliance. The Council is expected to examine whether civil remedies — recovery of unpaid tax together with interest and penalties — are sufficient in cases where criminal intent is absent.

887 arrests in four years

The scale of GST enforcement has also become part of the debate. Data from central GST formations cited in reports showed that 72,393 cases of GST violations were registered between 2021-22 and 2024-25, while 887 arrests were made by central formations during the period. The arrest figure does not include action by state GST authorities.

Businesses have raised concerns that the possibility of arrest can exert considerable pressure on companies and senior executives even before disputes are finally adjudicated. Banking, insurance and other service-sector businesses have been among those raising concerns about the use of coercive enforcement in complex interpretational matters.

Debate dates back to GST birth

Concerns over arrest powers are not new. They were debated even while the GST framework was being formulated. Minutes of early GST Council meetings show that representatives of some states had questioned whether giving revenue officers arrest powers could result in harassment and undermine ease of doing business.

The Council had at the time attempted to limit arrests to serious offences and differentiate between bailable and non-bailable cases based on the amount involved. Official records show that members had also emphasised that arrests should not be made in cases involving “grey areas” of assessment.

Wider GST 2.0 push

The enforcement proposals are expected to form part of a wider set of measures before the GST Council on October 7. Other issues likely to be considered include changes related to input tax credit, refunds in cases of inverted duty structures and easing compliance around e-way bills.

If the Council backs the changes, amendments to the GST law would still be required before the new enforcement regime could become operational. Reports indicate that the Centre could bring the necessary legislative changes before Parliament during the Winter Session.

The proposed reforms would represent a fundamental shift in the philosophy of GST enforcement — from using arrest and prosecution as enforcement instruments in a wider category of cases towards reserving criminal action primarily for serious and deliberate tax fraud.