GST council set to remove arrest powers, limit small notices, and ease e-commerce rules

As the 57th GST Council is set to convene on October 8, the Council is likely going to approve a comprehensive set of enforcement and procedural reforms, headlined by the total removal of arrest powers and significant compliance relief for MSMEs and e-commerce sellers.

Marking a fundamental shift in enforcement policy, the power of arrest is proposed to be removed entirely from the GST statute. Tax authorities will instead rely on civil financial measures, i.e tax recovery, interest, and proportionate penalties to resolve tax disputes.

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 According to sources, arrest was initially written into the law as a deterrent when manual invoice tracking was limited. With current digital matching system capabilities, fake credit is detected directly by the portal.

In addition, the statutory threshold for prosecution is expected to be raised fivefold from ₹1 crore to ₹5 crore, shielding ordinary operational, valuation, or classification disputes from criminal proceedings. Nine statutory offences are proposed for complete decriminalisation, while 24 others will see maximum sentences reduced and mandatory minimum prison terms removed.

To clear administrative backlogs and reduce costs for small businesses, the Council is expected to set a minimum threshold of ₹10,000 for issuing show-cause notices under sections 73, 74, and 74A.

Crucially, this threshold is slated to apply retroactively to existing pending cases before adjudicating officers, Appellate Authorities, and the Appellate Tribunal. The rule would immediately close approximately 1.23 lakh pending show-cause notices and nearly 11,800 first appeals.

For small entrepreneurs and micro-enterprises supplying through digital platforms, the Council is likely going to approve eliminating the requirement of maintaining a physical registered office in every state supplied.

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Under the proposed arrangement, a small seller needs physical address verification and authentication only once in their home State. To sell across India, the merchant can declare the e-commerce platform's local warehouse as their place of business in other States via automated platform consent, involving no officer intervention.

The Council is also set to consider an optional annual return paired with quarterly payments for businesses with turnover up to ₹5 crore that supply exclusively to unregistered end-consumers (B2C). This reform would transition roughly 16.66 lakh small traders from recurring monthly filing requirements into a single annual return.