GST officers may lose arrest powers as Centre plans major enforcement reform

The GST Council is set to consider proposals to remove arrest powers from tax officers and require court approval for any arrest. The move would narrow criminal prosecution, while keeping tax recovery and penalties intact.The proposed changes would not affect the government's ability to recover unpaid taxes or impose interest and penalties. (Representative image)The GST Council is likely to consider a major overhaul of enforcement provisions at its October 7 meeting, including a proposal to take away arrest powers from tax officials and require judicial authorisation for any arrest.The proposed changes are part of the government's Next-Generation GST reforms and could mark a shift towards a more civil, recovery-focused approach to tax enforcement.Under the proposal, GST officers would no longer be able to authorise arrests under Section 69 of the Central GST Act. Any arrest would instead require an order from a court, the sources said.The Council is also likely to consider raising the threshold for launching criminal prosecution from Rs 1 crore to Rs 5 crore. The proposal would seek to reserve criminal proceedings for more serious cases involving significant tax evasion or fraud. The proposed changes would also narrow the scope of prosecution provisions so that routine disputes over classification, valuation or input tax credit (ITC) are not treated as criminal offences when they arise from differing interpretations of tax rules.TAX RECOVERY POWERS TO REMAINThe proposed changes would not affect the government's ability to recover unpaid taxes or impose interest and penalties. Taxpayers found to have short-paid tax or wrongly claimed ITC would continue to face recovery proceedings and other statutory consequences. Compounding provisions would also allow certain offences to be settled upon payment of the prescribed tax, interest and penalty.Serious cases involving deliberate tax evasion or fraud could continue to be prosecuted through the courts.The proposals include changes to 24 offences currently covered under the prosecution provisions of the GST law. Nine offences are proposed to be removed entirely, while 11 would be retained in their existing form.The minimum sentence provision is also proposed to be removed, meaning courts would not be required to impose imprisonment in such cases.A fine would be available as an option in every case, while the maximum sentence in the middle category could be reduced from three years to two years.The Council may also consider waiving late fees for small taxpayers and rationalising penalties.SHIFT TOWARDS DATA-BASED ENFORCEMENTThe proposed changes come after the government's major GST rate rationalisation in September 2025, which simplified the structure around a 5 per cent merit rate and an 18 per cent standard rate, along with a 40 per cent rate for select luxury and demerit goods.The next phase of reforms is expected to focus on simplifying administration, reducing compliance costs and making enforcement more proportionate.A wider package under consideration includes easier GST registration, faster refunds, simpler ITC procedures and changes to show-cause notices and penalties.AMRG Global Managing Partner Rajat Mohan described to PTI that the proposal as a shift from arrest-led deterrence towards technology-led detection and civil-liability-based enforcement.“With arrest removed and prosecution reserved for more serious cases, the focus is increasingly on using GSTN's data capabilities to detect fraud rather than relying on coercive powers,” Mohan said.The government is also looking at the reforms in the context of its wider effort to decriminalise economic and regulatory offences.When GST was introduced in July 2017, arrest powers were intended to act as a deterrent against serious tax evasion and fake invoicing.Since then, improvements in invoice matching and GSTN data systems have made it easier for authorities to detect suspicious input tax credit claims and identify fraud closer to the point where it occurs.If approved, the proposed changes would require amendments to the GST law. The Council's recommendations would therefore need to go through the legislative process before taking effect.- EndsWith PTI inputs