57th GST Council Meeting: Arrest Powers, Prosecution, Refunds, ITC and Returns

The GST Council held its 57th meeting in New Delhi on 8 October 2026. The press release issued the same evening by the Ministry of Finance sets the meeting apart from the previous one: the 56th meeting dealt with rate rationalisation, while the 57th dealt with process, covering registration, returns, refunds and adjudication, together with clarifications on rates and further measures for trade facilitation. What follows sets out the recommendations area by area, with only the dates the release itself gives. The detailed report accompanying this article lists every recommendation with its paragraph in the release.

One point governs everything below. The release closes with this note:

The same would be given effect through the relevant circulars/ notifications/ law amendments which alone shall have the force of law.

Many of the recommendations need amendments to the CGST Act, 2017 or the IGST Act, 2017. Until those are enacted and notified, the present law continues to apply.

Arrest, prosecution and penalties

The most significant change in enforcement is the recommended complete withdrawal of arrest powers by omitting section 69 of the CGST Act. Alongside it, the monetary threshold for prosecution is to rise from ₹ 1 crore to ₹ 5 crore, and section 132(1) is to be narrowed: clause (i) omitted, “evades tax” deleted from clause (e), and clause (c) confined to fraudulent availment of ITC without receipt of goods or services or without an invoice or bill.

On penalties, the maximum general penalty under section 125 is to come down from ₹ 25,000 to ₹ 10,000. In non-fraud cases, the minimum penalty of ₹ 10,000 is to go, and a reduced penalty of 5% will apply where tax and interest are paid within 30 days of the order under section 73, or within 60 days under section 74A. No show cause notice is to be issued under sections 73, 74 and 74A where the tax involved is below ₹ 10,000, and pending notices and appeals below that amount are to be decided as if the threshold had applied when the notice was issued. For appeals against orders involving only penalty, the pre-deposit is to be capped at ₹ 40 crore (₹ 20 crore each under CGST and SGST/UTGST).

The Council also recommended a validation clause for notices that courts have struck down for covering several financial years. Taxpayers holding orders that quashed such notices should keep the position under watch, since the clause is meant to validate those notices.

E-way bills and interception

Under amendments recommended to sections 68, 129 and 130, a conveyance could be intercepted only on specific intelligence and with authorisation from an officer not below Joint Commissioner. Inspection, detention or seizure would be possible only where the supplier or the recipient is located or registered in the State of interception, with no interception in transit States. Where no e-way bill or document showing origin or destination is carried, the jurisdiction limit would not apply. Confiscation under section 130 would not apply to goods or conveyances in transit. Separately, rule 86A of the CGST Rules, 2017 is to give a taxpayer the right to object to blocking of the electronic credit ledger and to a personal hearing before a decision.

Refunds

Refunds are to move to system-based processing in two phases. In phase 1, refund of excess balance in the electronic cash ledger will be sanctioned by the system in full, the time for an acknowledgement or deficiency memo drops from 15 days to 10 days with deemed acknowledgement after that, and 90% of claims on zero-rated supplies and inverted duty structure will be sanctioned provisionally on the system’s risk evaluation. In phase 2, acknowledgement will be automated and full refund on zero-rated supplies sanctioned by the system, after adjusting pending dues.

Rule 89(4)(C) of the CGST Rules is to lose the cap that limits zero-rated turnover of goods to 1.5 times the value of like goods supplied domestically. The ₹ 1,000 threshold in section 54(14) is to apply to the total of CGST, SGST/UTGST and IGST together.

Input tax credit

In inverted duty cases, ITC on input services will qualify for refund where availed on or after 1 November 2026. In zero-rated and inverted duty refunds, ITC on capital goods will qualify where availed on or after 1 April 2027, spread over 60 months. Section 17(5) is to lose its restrictions on, among others, 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. Restaurants, hotel accommodation up to ₹ 7,500 per unit per day, and gyms are to get limited ITC in the same line of business.

The 1 November 2026 date is the one closest at hand. Businesses with an inverted duty structure should be able to identify ITC on input services availed from that date separately in their records, whatever form the rule finally takes.

Returns

An alternate mechanism for correcting liability and ITC is recommended, to apply from the return of April 2027: new sub-rules (1A) and (1B) in rule 61 to align FORM GSTR-3B with GSTR-1/1A/IFF and with GSTR-2B, the Invoice Management System written into rule 60 as sub-rule (6A), two new electronic statements under rules 86C and 86D, and DRC-03 payments linked to invoices. The proposed mechanism is first to be placed in the public domain for a time-bound consultation.

Registration

Amendments to registration particulars, other than the principal place of business, are to be accepted automatically under an amended rule 19; for those registered through the rule 14A route, the principal place of business too. Cancellation applications in FORM GST REG-16 will be accepted by the system once returns are filed and dues paid, in two phases. A new rule 14B would let small sellers on e-commerce platforms register in another State by declaring the operator’s warehouse there as the principal place of business.

Exports

The condition in section 2(6)(v) of the IGST Act, that supplier and recipient are not establishments of a distinct person, is to be omitted, which the release says will help Indian service providers supplying to or through their own foreign offices. Section 13(3)(a) is to be omitted so that services on goods made available by the recipient follow the location of the recipient. Goods sold to an overseas buyer but delivered in an SEZ or FTWZ are to be deemed supplies to the SEZ or FTWZ, subject to the payment condition.

Small businesses and other compliance

Late fee on a return under section 39(1) is to be waived for taxpayers with turnover up to ₹ 5 crore in the preceding year, if the return is filed by the end of the month in which it was due. The Council approved in principle a concept note for an optional Annual Return Quarterly Payment scheme for businesses with turnover up to ₹ 5 crore supplying only to unregistered persons; the release gives no further detail. E-invoicing is to extend to reverse charge supplies from unregistered persons and to import of services for those with turnover of ₹ 5 crore and above. Transfer of title in intellectual property rights is to be treated uniformly as a supply of services.

Rates and clarifications

On goods, the Council clarified the classification of sublimation paper, toys and seaweed-based bio-stimulants, confirmed that margin-scheme dealers in second-hand vehicles may take ITC on inputs other than the vehicles and on input services, and recommended reverse charge on specified plastic, electronic and tyre scrap and used cooking oil, with TDS at 2% on supplies between registered persons. On services, it recommended a 5% option for passenger transport and rental using electric vehicles, 5% without ITC for delivery services through e-commerce operators, and several exemptions.

Dates the release states

• ITC on input services availed on or after 1 November 2026: refund in inverted duty cases.
• ITC on capital goods availed on or after 1 April 2027: refund over 60 months.
• The alternate return mechanism: from the return of April 2027, after consultation.
• Rule 96(10) of the CGST Rules: to be omitted with effect from 23 October 2017, in line with the Supreme Court’s decision.

Every other recommendation takes effect only from the date in the notification or amendment that implements it.

This article is intended for educational purposes only and should not be construed as professional advice. It is based on the law as understood on the date of publication; laws and regulations are subject to change, and it may not reflect later developments. Readers are advised to consult a qualified tax professional on their specific situation before taking any action based on it. CA. Mohit Gaba takes no responsibility for any action taken or decision made on the basis of this article.