By ComplyKart Expert Team · Reviewed by our indirect tax specialists · Last updated: October 2026

57th GST Council: Why Arrest May Disappear from GST — and What It Means for Your Business

The 57th GST Council meets on 8 October 2026. And if reports ahead of the meeting are accurate, this could be the most business-friendly Council session in years — not because of rate cuts, but because of a fundamental rethink of how GST is enforced.

The headline proposal: remove the power of arrest from the GST law entirely. Tax disputes would be settled the civil way — through tax recovery, interest, and proportionate penalties — instead of through criminal proceedings.

Let me say upfront what this article is and is not. These are proposals reported ahead of the meeting. They become law only when the Council approves them and the amendments pass. But the direction is unmistakable, and you should understand it now.

Why arrest was in the law — and why it may leave

When GST launched in 2017, invoice tracking was largely manual. Fake invoicing and fraudulent input tax credit were rampant, and the department had limited tools to detect them in real time. Arrest was written into the statute as a deterrent — a blunt instrument for a system that could not yet see clearly.

Nine years later, the system sees everything. E-invoicing, GSTR-2B auto-matching, and data analytics flag fake credit at the portal level. The department no longer needs handcuffs to find fraud; it has dashboards.

Here is the analogy that makes this click. Think of a library. If someone returns a book late, the library charges a fine. It does not call the police. The book still has to come back, and the fine still has to be paid — but an overdue book is a civil matter, not a criminal one. The proposed GST shift works the same way. You will still owe the tax. You will still pay interest and penalty. But a classification dispute or a valuation disagreement will no longer carry the shadow of a prison cell.

The prosecution threshold: from ₹1 crore to ₹5 crore

Alongside the arrest proposal, the Council is expected to raise the monetary threshold for prosecution fivefold — from ₹1 crore to ₹5 crore. Nine statutory offences are proposed for complete decriminalisation, while 24 others would see maximum sentences reduced and mandatory minimum prison terms removed.

This matters enormously for ordinary businesses. Most prosecution cases under GST have not involved hardened fraudsters. They have involved operational disputes — a difference of opinion on classification, a valuation disagreement, a missed procedural step that snowballed. A ₹1 crore threshold catches mid-sized businesses in that net far too easily. At ₹5 crore, criminal proceedings stay reserved for genuinely large-scale evasion.

The ₹10,000 floor for show-cause notices

This is the proposal with the most immediate practical impact. The Council is expected to set a minimum threshold of ₹10,000 for issuing show-cause notices under Sections 73, 74, and 74A.

Small demands cost more to litigate than they are worth — for the department and for you. A notice for a few thousand rupees still needs a reply, still needs an adjudication order, still clogs the system. A floor fixes that.

Crucially, reports suggest this threshold would apply retroactively — to cases already pending before adjudicating officers, appellate authorities, and the tribunal. If that happens, roughly 1.23 lakh pending show-cause notices and nearly 11,800 first appeals could close immediately, as reported. That is not a minor cleanup. That is years of backlog evaporating in a single decision.

E-commerce sellers: one registration reality, not fifty

For small entrepreneurs selling through digital platforms, the Council is expected to remove one of the most irritating compliance burdens in the system: maintaining a physical registered office in every state you supply to.

Under the reported proposal, a small seller would complete physical address verification and authentication just once, in their home state. To sell across India, they could declare the e-commerce platform's local warehouse as their place of business in other states — through automated platform consent, with no officer intervention.

If you sell on marketplaces today, you know how absurd the current position is. A home-based seller shipping fifty orders a month was, in theory, expected to maintain a verifiable physical presence in every state those orders reached. The proposal replaces that fiction with something workable.

What does NOT change

Let me be the candid advisor here, because headlines about "no more arrests" can mislead. Decriminalisation is not de-taxation.

You still owe every rupee of tax due. Interest still accrues on delayed payments. Penalties still apply to defaults. The department's data-matching capabilities are only getting sharper, which means under-reporting is more likely to be caught, not less. What changes is the nature of the consequence — financial rather than criminal — not whether there is one.

File on time. Pay on time. Reconcile your GSTR-2B with your purchase register every month. None of that changes, whatever the Council decides today.

What to watch for

Three things will tell you how serious this reform is. First, whether the arrest removal survives the meeting intact or gets diluted into "arrest only for fraud above a threshold." Second, whether the ₹10,000 notice floor genuinely applies retroactively — that is where the real backlog relief lies. Third, the timeline: Council decisions need legislative amendments, which means the actual law changes will follow over the coming months, not overnight.

We will update this space as the decisions firm up. For now, the signal is clear: the government wants GST enforcement to feel less like a police matter and more like a tax matter. That is a healthy direction for every compliant business in the country.

Running a GST-registered business? Make sure your basics are right first — see who needs GST registration and how to apply online.