57th GST Council Meeting Recommendations: Arrest Powers, Penalties, Refunds and ARQP
57th GST Council Meeting Recommendations: Arrest Powers Removed, Prosecution Threshold Raised to ₹5 Crore, Faster Refunds and More
The 57th GST Council meeting recommendations, announced on 8 October 2026, propose removing arrest powers under GST, raising the prosecution threshold from ₹1 crore to ₹5 crore, cutting the maximum general penalty from ₹25,000 to ₹10,000, and automating refunds, registration and cancellation.
The 57th GST Council meeting was held in New Delhi on 8 October 2026 under the chairpersonship of Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman. According to the Press Information Bureau (PIB), the Council focused on process reforms, clarifications and trade facilitation. This follows the rate rationalisation of the 56th meeting.
Important: These are recommendations of the GST Council. As the PIB release itself states, they take legal force only through the relevant circulars, notifications and law amendments. Until then, existing provisions continue to apply.
57th GST Council Meeting at a Glance
| Particular | Details |
|---|---|
| Meeting date | 8 October 2026 |
| Venue | New Delhi |
| Chairperson | Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman |
| Theme | Process reforms (registration, returns, refunds, adjudication), clarifications, trade facilitation |
| Arrest powers | Complete withdrawal recommended (omission of section 69, CGST Act) |
| Prosecution threshold | ₹1 crore to ₹5 crore |
| Maximum general penalty (section 125) | ₹25,000 to ₹10,000 |
| Minimum threshold for show cause notices | ₹10,000 (CGST + SGST + IGST + Cess) |
| Late fee waiver | Taxpayers with turnover up to ₹5 crore, if return is filed by the end of the month in which it was due |
| Optional ARQP scheme | Approved in-principle for turnover up to ₹5 crore, B2C supplies only |
What Are the Key Takeaways from the 57th GST Council Meeting?
- Arrest powers under GST are proposed to be removed entirely by omitting section 69 of the CGST Act, 2017.
- The monetary threshold for prosecution is proposed to rise from ₹1 crore to ₹5 crore.
- The maximum general penalty under section 125 is proposed to fall from ₹25,000 to ₹10,000.
- No show cause notice would be issued where the tax involved is below ₹10,000.
- Refunds of excess balance in the electronic cash ledger would be sanctioned automatically by the system.
- Registration amendments and cancellations would be largely automated.
- An optional Annual Return Quarterly Payment (ARQP) scheme was approved in-principle for small B2C businesses.
- Several ITC blocks under section 17(5) are proposed to be relaxed.
A. Process Reforms Under the 57th GST Council Meeting Recommendations
Registration Reforms
1. Clearer registration filing and processing. Under rule 14A of the CGST Rules, 2017, the portal already grants automatic registration without officer intervention where the applicant does not intend to pass on ITC of more than ₹2.5 lakh per month. For the remaining cases, the Council recommended:
- A comprehensive circular listing documents and information required for registration, with FAQs.
- Drop boxes in FORM GST REG-01 for selecting prescribed documents, so taxpayer and officer have clarity.
- A more user-friendly portal with clear navigation, drop-down lists, tool-tips and contextual guidance.
The stated aim is to reduce rejections and queries and speed up processing.
2. Easier amendment of registration (rule 19). Amendments to all registration particulars would be accepted automatically on the portal, except those relating to the Principal Place of Business (PPoB). For taxpayers registered under rule 14A (the automatic route), amendments of all particulars, including PPoB, would be accepted automatically.
3. Simplified cancellation of registration.
On the taxpayer’s application (FORM GST REG-16):
| Phase | What happens |
|---|---|
| Phase 1 | Applications are accepted automatically once all pending returns are filed and dues paid, where (a) ITC passed on has not exceeded ₹2.5 lakh in any month since registration, or (b) ITC exceeding ₹2.5 lakh was passed on in a month but the final return in FORM GSTR-10 was filed within the specified time. |
| Phase 2 | All cancellation applications are accepted automatically once pending returns are filed and dues paid. FORM GST REG-16 will be amended so GSTR-10 details can be furnished in the application itself. |
Suo-moto cancellation by officers: Rule 21 is to be amended to omit certain grounds. Rules 21A and 22 are to be amended and a new rule 23A inserted, providing system-based cancellation and revocation based on non-compliance (non-filing of returns or non-furnishing of bank account details) and subsequent compliance within a specified period.
4. Registration for small sellers on e-commerce platforms (new rule 14B). Small suppliers of goods through Electronic Commerce Operators (ECOs) in States/UTs where they have no physical presence, and who intend to pass on ITC of not more than ₹2.5 lakh per month (excluding stock transfers between distinct persons), could register automatically by declaring the ECO’s warehouse in that State/UT as their Principal Place of Business, subject to conditions.
Return Reforms
The Council recommended an alternate mechanism for correcting liabilities and ITC in returns to reduce mismatches and system-generated notices. The measures include:
- Enhancements to FORM GSTR-1/1A/IFF for better reconciliation with GSTR-3B.
- Rule 86D: an “Electronic Statement of tax paid on Reverse charge basis and input tax credit claimed”.
- Rule 61(1A): correction of liability in GSTR-3B so it aligns with GSTR-1/1A/IFF.
- Rule 61(1B): correction of ITC availed in GSTR-3B so it aligns with GSTR-2B.
- Rule 86C: an “Electronic Credit Reversal and Reclaim Statement”.
- Rule 60(6A): Invoice Management System (IMS) changes allowing recipients to accept, reject or keep pending documents for GSTR-2B, including the period a credit note can stay pending.
- An amendment to FORM GST DRC-03 to declare the underlying invoice for which payment is made.
- A circular on correct furnishing of ITC and its reversal in GSTR-3B.
When would this apply? The Council recommended that these provisions come into force from the return of April 2027. The revised mechanism will be placed in the public domain for time-bound consultation, and the Union Finance Minister was authorised to approve changes based on feedback.
Refund Reforms
The Council recommended amendments to section 54 of the CGST Act and the Rules for system-based processing and sanction of refunds of excess cash ledger balance, zero-rated supplies and inverted duty structure, in two phases.
| Phase | Measures |
|---|---|
| Phase 1 | Full refund of excess balance in the electronic cash ledger sanctioned automatically. Time limit for acknowledgement/deficiency memo cut from 15 days to 10 days, with deemed acknowledgement if none is issued in 10 days. For zero-rated supplies and inverted duty structure, 90% of the claim sanctioned provisionally and automatically on system risk evaluation. |
| Phase 2 | System-based automated acknowledgement after verification. Automated sanction of the full refund for zero-rated supply claims, after adjusting pending dues, based on system risk evaluation. |
Other refund changes recommended:
- FORM GST RFD-01 to capture details in a system-readable format, removing scanned-document uploads for zero-rated supply and inverted duty refund claims.
- Rule 89(4)(C) to be amended to remove the cap of 1.5 times the value of like goods supplied domestically on turnover of zero-rated supply of goods.
- Section 54(14) to clarify that the ₹1,000 threshold applies to the total refund (CGST, SGST/UTGST and IGST together).
- Section 115 to become a standalone provision on the interest rate for refund of pre-deposit paid for appeals, with a clarifying circular.
Dispute Resolution Reforms
- Minimum threshold for notices: No show cause notice under sections 73, 74 or 74A would be issued where the tax involved is below ₹10,000 (CGST + SGST + IGST + Cess). Notices and appeals below this amount that are pending when the provision comes into force would be decided as if the threshold had applied when the notice was issued.
- Penalty treated as “charge”: where full tax is voluntarily paid along with interest and penalty within the specified time.
- Reduced 5% penalty in non-fraud cases: where tax and interest are paid within 30 days (section 73) or 60 days (section 74A) of the adjudication order.
- Minimum penalty of ₹10,000 removed in non-fraud cases.
- General penalty (section 125): maximum cut from ₹25,000 to ₹10,000.
- Pre-deposit cap: an upper limit of ₹40 crore (₹20 crore CGST + ₹20 crore SGST/UTGST) on pre-deposit for appeals before the Appellate Authority or Appellate Tribunal where the order involves only penalty and no tax demand (sections 107(6) and 112(8)).
- A circular guiding officers on the quality and timeliness of notices and orders, invoking fraud or wilful misstatement only on merits, and following natural justice, including personal hearings.
B. Other Major GST Reforms Recommended
Input Tax Credit (ITC)
Refund of accumulated ITC (section 54(3) proviso):
| Category | Recommendation | Applicable to |
|---|---|---|
| Inverted duty structure: input services | Refund of accumulated ITC allowed | ITC availed on or after 1 November 2026 |
| Zero-rated supplies and inverted duty structure: capital goods | Refund spread over 60 months | ITC availed on or after 1 April 2027 |
Blocked credit (section 17(5)): The Council recommended removing restrictions on ITC, among others, on outdoor catering, health and life insurance, telecommunication towers, pipelines laid outside factory premises, free samples, and goods destroyed or written off on expiry of shelf life as required by law.
Limited ITC in the same line of business (services): Limited ITC is to be allowed for restaurant/outdoor catering, hotel accommodation (value up to ₹7,500 per unit per day) and gym/fitness services, in the same manner as currently available for passenger transportation, tour operator and motor vehicle rental services.
Exports and Zero-Rating
- Omission of sub-clause (v) of section 2(6) of the IGST Act, removing the condition that supplier and recipient must not be establishments of a distinct person for “export of services”. This helps refunds on services supplied to or through foreign offices or branches.
- A circular clarifying that payment in foreign exchange or Indian rupees is permissible for export of goods and services.
- Omission of section 13(3)(a) of the IGST Act, so place of supply for services involving goods made available by the recipient to the supplier follows the default rule (location of the recipient).
- An explanation to section 16(1) of the IGST Act: goods sold to an overseas buyer but delivered to an SEZ/FTWZ, with payment in convertible foreign exchange or in INR where RBI permits, will be a supply to an SEZ/FTWZ (zero-rated).
Arrest, Prosecution and E-Way Bill Provisions
Arrest and prosecution
- Complete withdrawal of arrest powers by omitting section 69 of the CGST Act, 2017.
- Prosecution threshold raised from ₹1 crore to ₹5 crore.
- Omission of clause (i) of section 132(1); deletion of “evades tax” in clause (e) and “or in any other manner deals with” in clause (h).
- Clause (c) of section 132(1) limited to fraudulent availment of ITC without receipt of goods or services, or without invoice or bill.
- Rationalised punishment for offences under section 132.
E-way bill and interception (sections 68, 129, 130)
- A conveyance carrying goods can be intercepted only on specific intelligence and with authorisation of an officer not below the rank of Joint Commissioner.
- Further action for detention or seizure can be taken when the supplier or recipient is located or registered in the State where interception is made. No interception in transit States.
- Where no e-way bill has been generated, or the conveyance carries no document showing origin or destination, goods can be inspected, detained or seized irrespective of jurisdiction.
- Confiscation under section 130 will not apply to goods or conveyances in transit.
Other Ease of Doing Business Measures
- Late fee waiver (section 39(1)): Late fee on delayed filing of return under section 39(1) is waived for taxpayers with annual turnover up to ₹5 crore in the preceding financial year, if the delayed return is filed by the end of the month in which it was due.
- Rule 86A: Taxpayers will be able to object to blocking of the electronic credit ledger and get a personal hearing before the officer decides.
- IPR transfer: Transfer of title in intellectual property rights, temporary or permanent, to be uniformly treated as a supply of services (Schedule II).
- E-invoicing: To be extended to domestic supplies received from unregistered persons where tax is payable under reverse charge, and to import of services, for taxpayers with aggregate annual turnover of ₹5 crore and above.
- Section 16, 37 and 39 alignment: Furnishing of outward supply statements and returns to be aligned with the ITC time limit under section 16(4).
- Section 9(5): Clarity on ECO liability for notified services irrespective of business model.
- Validation clause for notices held invalid by courts for covering multiple financial years.
- Rule 96(10) omission, effective from 23.10.2017, in line with the Supreme Court decision.
- GSTAT: Amendments to align the GST Appellate Tribunal provisions with the Tribunals Reforms Act, 2026 and related Rules.
Circulars Recommended for Clarification
The Council recommended circulars on: Input Service Distributor (ISD) credit distribution; ITC for banks and financial institutions including NBFCs opting for section 17(4); payment of pre-deposits; and ITC on demonstration vehicles in certain situations.
What Is the ARQP Scheme Approved by the 57th GST Council?
The Annual Return Quarterly Payment (ARQP) scheme is an optional scheme for taxpayers with aggregate turnover of ₹5 crore or less in the preceding financial year who are engaged exclusively in supplies to unregistered persons (B2C supplies). The Council approved a concept note in-principle. Full details, including how it will work and when it applies, were not specified in the press release.
C. GST Rate Changes and Clarifications
Goods
| Item | Recommendation |
|---|---|
| Sublimation paper | Classified under heading 4809; past cases regularised on “as is where is” basis |
| Toys | Rate entries cover all toys under heading 9503 (dolls, puzzles, etc.), not only tricycles, scooters and pedal cars |
| Sea-weed extract bio-stimulants | Classifiable under heading 3101 as fertilisers (registered under Schedule VI of the Fertiliser Control Order, 1985); past cases regularised |
| Second-hand vehicles (margin scheme) | Suppliers may avail ITC on other inputs and input services (spares, repairs, rent, marketing etc.); the restriction applies only to tax paid on procured second-hand vehicles |
| Waste and scrap (plastics, e-waste, tyres, used cooking oil) | Brought under RCM when supplied by unregistered to registered persons; 2% TDS on B2B supplies by registered persons |
| Psyllium seeds (Isabgol) | NIL rate, whether fresh, chilled, frozen or dried |
| Re-treaded tractor tyres | Rate aligned with new tractor tyres |
| Canteen Stores Department (CSD) | Exemption of Compensation Cess not levied on two and four wheelers (01.07.2017 to 30.09.2022) and on aerated drinks by CSDs and Unit Run Canteens (01.07.2017 to 31.03.2022) |
Services
| Service | Recommendation |
|---|---|
| Passenger transport and motor vehicle rental using electric vehicles | Option to pay GST at 5% with restricted ITC (where battery charging cost is included in consideration) |
| Delivery services through ECOs (other than courier and postal) | 5% without ITC where supplier is not liable for registration under section 22(1); same rate for delivery services for goods ordered through an ECO |
| GTA exemption for transport to unregistered persons | Excluded for goods supplied or ordered through an ECO |
| Motor vehicle leasing | Clarification on statutory and ancillary recoveries (registration, road tax, insurance, FASTag) |
| Helicopter seat-sharing services | Exempt, from/to airports/helipads in north-eastern states, Sikkim and Bagdogra (West Bengal) |
| Storage or warehousing of seeds meant for sowing | Exempt |
| Curing of coffee (by curers to cultivators) | Exempt |
| Seamen’s Provident Fund Organisation services | Exempt for persons governed by the Seamen’s Provident Fund Act, 1966 |
| Research and development | Self-certification by head of institution for exemption under Entry 44A of Notification 12/2017-CT(R) |
| Import of services by Indian establishments of foreign shipping lines | Exempt when from a related person or establishment outside India without consideration; past period regularised |
| NHAI upfront or concession amount under Toll Operate Transfer (TOT) | Exempt |
| O&M services under highway TOT projects | Special procedure for valuation and time of payment |
| Fund Transfer Pricing in banks | Clarified that the notional amount is covered by the definition of “interest” |
Who Benefits Most From the 57th GST Council Meeting Recommendations?
- Small businesses: ₹10,000 notice threshold, late fee waiver up to ₹5 crore turnover, and simplified registration and cancellation.
- Exporters and manufacturers with inverted duty structures: faster, largely automated refunds and refund of ITC on input services and capital goods.
- E-commerce sellers: registration in other States through the ECO warehouse route (rule 14B).
- Businesses in catering, hospitality, insurance and telecom infrastructure: relaxation of blocked credit and limited ITC in the same line of business.
- Taxpayers facing litigation: lower penalties, reduced 5% penalty in non-fraud cases and pre-deposit cap in penalty-only appeals.
- Transporters: clearer interception rules and no confiscation of goods in transit.
What Should Taxpayers Do Now?
- Do not change compliance yet. Current law applies until notifications, circulars and amendments are issued.
- Track official updates on the CBIC and GST Council websites for notifications and FAQs.
- Prepare for April 2027: review GSTR-1 to GSTR-3B and GSTR-2B to GSTR-3B reconciliation processes and IMS usage.
- Review ITC positions on input services (from 1 November 2026) and capital goods (from 1 April 2027) if you are in an inverted duty or export position.
- Review pending notices below ₹10,000 and other pending disputes once the amendments are enacted.
- Check classification and rate clarifications that may affect past cases.
Common Mistakes to Avoid
- Treating the recommendations as already in force.
- Assuming all reforms apply from the same date. Only some have dates stated.
- Ignoring the conditions (for example, the ₹2.5 lakh ITC condition for automatic registration).
- Assuming reduced penalties apply to fraud cases. The reduced 5% penalty and removal of minimum penalty apply to non-fraud cases.
FAQs
FAQ: What are the main recommendations of the 57th GST Council meeting?
The key recommendations are removing arrest powers under GST, raising the prosecution threshold from ₹1 crore to ₹5 crore, reducing the maximum general penalty from ₹25,000 to ₹10,000, automating refunds, registration and cancellation, and approving an optional ARQP scheme in-principle.
FAQ: When was the 57th GST Council meeting held?
It was held on 8 October 2026 in New Delhi, chaired by Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman.
FAQ: Are arrest provisions removed from GST?
The Council recommended complete withdrawal of arrest powers by omitting section 69 of the CGST Act, 2017. This takes effect only after the law is amended.
FAQ: What is the new prosecution threshold under GST?
The Council recommended raising it from ₹1 crore to ₹5 crore, with narrower offences under section 132.
FAQ: Will notices be issued for small tax amounts?
No, under the recommendation. No show cause notice would be issued under sections 73, 74 or 74A where the tax amount is below ₹10,000.
FAQ: Who gets the late fee waiver?
Taxpayers with annual turnover up to ₹5 crore in the preceding financial year, if the delayed return under section 39(1) is filed by the end of the month in which it was due.
FAQ: When will the new return correction mechanism start?
The Council recommended it from the return of April 2027, after public consultation.
FAQ: What is the ARQP scheme?
It is an optional Annual Return Quarterly Payment scheme for taxpayers with turnover up to ₹5 crore who make only B2C supplies. It was approved in-principle through a concept note.
Conclusion
The 57th GST Council meeting recommendations shift GST towards a more trust-based and automated system. The headline changes are the proposed omission of arrest powers, a ₹5 crore prosecution threshold, a ₹10,000 notice threshold and a lower maximum general penalty of ₹10,000. For compliance, the key dates stated are 1 November 2026 (ITC on input services for inverted duty refunds), April 2027 (return correction mechanism) and 1 April 2027 (capital goods ITC refund over 60 months). Taxpayers should wait for official notifications and circulars before acting.
Sources / References
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