GST Council Process Reforms: No Rate Change, but Big Relief on Refunds, ITC, Registration and Enforcement
The 57th meeting of the GST Council, held in New Delhi on 8 October 2026, approved a large set of process reforms. It did not change any GST rates.
Enforcement: GST officers will lose the power to arrest. The money limit for prosecution (criminal case in court) goes up five times, from ₹1 crore to ₹5 crore. The minimum jail term is to be removed, so judges can choose a fine, jail or both. The general penalty falls from ₹25,000 to ₹10,000.
Notices and refunds: No tax notice will be sent for amounts below ₹10,000, and pending notices below this amount will be withdrawn. 90% of refund claims are to be sanctioned within three working days of acknowledgement. Refunds for inverted duty structure will now also cover input services (from 1 November 2026) and plant and machinery (from 1 April 2027).
Input Tax Credit (ITC): Credit will be allowed on more business costs, such as employee health and life insurance, telecom towers, pipelines laid outside a factory, free samples and expired stock that must be destroyed by law. The demand to change Section 16(2)(c) (buyer losing credit when the supplier fails to pay tax) was sent to an officers' committee.
Registration, transport and small taxpayers: Registration and most refunds will be automated. Small online sellers can sell across states without a place of business in each state. Goods in transit will be checked only at origin and destination, on specific intelligence, with prior approval of a Joint Commissioner or above. An optional scheme (one annual return, quarterly tax payment) for businesses with turnover up to ₹5 crore that sell only to consumers was approved in principle.
Rates in future: GST rate changes will happen only once a year, taking effect on 1 April. Changes to arrest and prosecution rules need amendments to the GST laws by Parliament and the state legislatures.
GST Act Provisions on Offences and Arrests
The GST law punishes wrongdoing in two ways. Most cases end with money punishment: tax demand, interest and penalty, decided by tax officers. Only serious fraud leads to criminal punishment, which means a court trial (prosecution) and possibly jail. Arrest is the power that lets an officer take a person into custody before such a trial.
The 57th Council's biggest enforcement decision is to take arrest out of GST officers' hands and to raise the prosecution limit to ₹5 crore. This continues the move to "decriminalise" GST, so that honest mistakes are handled with money penalties and only large frauds reach a criminal court.
Input Tax Credit (ITC) Mechanism Under GST
Input Tax Credit (ITC) is the heart of GST. When a business buys inputs, it pays GST on them. When it sells its own goods or services, it subtracts the GST already paid from the GST it owes. This way, tax falls only on the value each business adds, and "tax on tax" is avoided.
Widening ITC lowers the real tax cost for businesses, because tax paid on more of their purchases can now be set off. The pending Section 16(2)(c) review targets one of the biggest complaints of honest buyers under GST.
Inverted Duty Structure Under GST
An inverted duty structure is a situation where the GST rate on what a business buys (inputs) is higher than the GST rate on what it sells (output). For example, if fabric is taxed at 12% but the garment made from it is taxed at 5%, the maker keeps collecting unused credit. This blocks the business's working capital (money needed to run daily operations). The law lets such businesses claim a refund of this extra credit.
The 57th Council directly fixes the gap that the VKC Footsteps judgment left open. Businesses stuck with higher-taxed inputs will now get back credit on services and machinery too, and faster.
The GST Council (Article 279A)
The GST Council is a constitutional body made up of the Union Finance Minister and the finance ministers of all states. It recommends GST rates, exemptions, rules and procedures. It was created by Article 279A, added through the 101st Constitutional Amendment Act, 2016. It is the main forum where the Centre and the states decide GST matters together.
The 57th meeting shows the Council working as a body for "process" reform, not just rate setting. Its recommendations on arrest and prosecution still need Parliament and the state legislatures to amend their GST Acts, which reflects the Council's recommendatory nature.
- Meeting: 57th GST Council, 8 October 2026, New Delhi; no GST rate change
- Arrest power of GST officers: to be removed; prosecution threshold raised from ₹1 crore to ₹5 crore
- General penalty: cut from ₹25,000 to ₹10,000
- No notices for amounts below ₹10,000; pending notices below this to be withdrawn (about 12 lakh taxpayers to benefit)
- Refunds: 90% sanctioned within 3 working days of acknowledgement; acknowledgement period cut from 15 to 10 days
- Inverted duty refund: input services from 1 November 2026; plant and machinery from 1 April 2027 (1/60 of credit per month)
- Section 16(2)(c) review: officers' committee to report in 3 months; target 1 April 2027
- Small taxpayer scheme: turnover up to ₹5 crore, B2C only, annual return with quarterly payment (approved in principle)
- Goods in transit: checks only at origin and destination, with approval of Joint Commissioner or above
- Rate changes: once a year, effective 1 April
- Faceless centralised CGST administration for about 2 lakh multi-state taxpayers; rollout planned in 2027-28
- GST Council: Article 279A, 101st Amendment Act, 2016; GST launched 1 July 2017