GST Council likely to drop arrest powers to curb tax overreach: Report

Over nine years after the implementation of the Goods and Services Tax (GST) in July 2017, the indirect tax framework is set for a dramatic structural shift: the total removal of arrest provisions under the regime.

The upcoming 57th GST Council meeting on October 7 will formally consider a proposal to decriminalise tax offences, The Indian Express reported. The move comes as part of a broader push to restore investor confidence and eliminate widespread fears of regulatory overreach by tax authorities.

The proposed reform is the culmination of eight to nine months of high-level consultations between the Centre and state governments. The driver behind the urgency has been growing discontent among business leaders over the arrest of high-ranking corporate executives under provisions that many in the industry viewed as excessive.

Business Today was unable to verify the development independetly.

If approved by the Council, the Union government is expected to introduce legislative amendments during the Winter Session of Parliament to formally strip GST authorities of their powers to arrest.

Instead of administrative arrests by tax inspectors, intentional fraud and deceit under the GST system will be tackled through formal prosecution under India's criminal code, the Bharatiya Nyaya Sanhita, as per The Indian Express report.

Scale of enforcement under GST 

Since the launch of the unified tax regime, enforcement agencies have contended with extensive fraudulent practices. These primarily involve fake identities or mule accounts used to generate artificial input tax credit (ITC), fake invoices without the underlying supply of goods, undervaluation of final goods, and tax evasion on taxable services.

Data from central GST formations shows that between FY 2021-22 and FY 2024-25:

• 72,393 cases of GST violations were registered. 
• 887 arrests were executed by central formations alone (excluding figures from state enforcement agencies). 

Under current provisions in the Central GST (CGST) Act, non-compliance attracts penalties under Section 122, interest charges under Section 50, and standard tax recovery. However, Section 69 gives the Commissioner power to authorize arrests for severe violations — such as fake invoicing or fraudulent ITC claims — provided there are documented "reasons to believe" backed by credible evidence.

Industry concerns

Industry experts argued that arrest provisions were frequently weaponised as harassment tools — particularly across service industries like banking and insurance — to pressure firms into paying disputed penalties rather than fighting drawn-out legal battles.

The removal of these powers would effectively align the GST system with the pre-2017 Value Added Tax (VAT) regime, which carried no provisions for administrative arrests by tax officials.

Concerns over these powers were raised in December 2016 during the 5th GST Council meeting. Minutes from that session show Maharashtra's Additional Chief Secretary noting that arrest powers conflicted with the goal of improving the ease of doing business, while West Bengal officials argued that VAT laws allowed FIRs to be filed only through police channels rather than granting direct detention powers to tax officers, as per the report by The Indian Express.

In September, the Central Board of Direct Taxes (CBDT) stripped tax recovery rules of "arrest and detention" powers with retrospective effect from April 1, 2026, prohibiting direct tax officers from detaining individuals over tax defaults.