GST Council drops arrest powers and will clear 90 percent of refunds in three days

The Goods and Services Tax Council on Thursday took the power of arrest out of GST enforcement, raised the line at which a case becomes a prosecution, and told the system to pay most refunds without an officer in the loop. The changes are the concrete part of a wider clean-up of penalties, credits and registration that the Council approved in New Delhi.

Arrest goes. The prosecution threshold rises from Rs 1 crore to Rs 5 crore. The general penalty falls from Rs 25,000 to Rs 10,000. A floor for notices is part of the same package, so that small discrepancies do not generate a formal demand. Tax lawyers who briefed Business Standard described the package as a shift toward proportionate enforcement. The industry gain is simple: a dispute under the new line is a money dispute, not a custody risk.

Refunds are the second change, and the one with a date. The system will sanction 90 percent of an eligible refund on a risk score, with no officer required to clear it. The refund order is to be issued within three working days of acknowledgement. The current allowance is seven days. Excess cash sitting in the electronic cash ledger will be refunded automatically, rather than on an application that waits in a queue. For a firm that lives on working capital, three days against seven, on nine tenths of the claim, is the number that matters.

Input tax credit on input services, in cases of an inverted duty structure, becomes refundable on or after 1 November 2026. Inverted duty is the situation in which tax on inputs is higher than tax on the output, so credit piles up and cannot be used. Refunding the services portion, not only goods, widens what can be claimed. Credit on plant and machinery, for exporters and for other businesses, becomes refundable on or after 1 April 2027, and that refund is spread over 60 months. A machine bought in 2027 does not return its tax in one cheque. It returns it across five years.

The Council also eased registration and cancellation, and widened the availability of credit for buyers who dealt with a supplier in good faith. The protection for a genuine buyer is aimed at the cases in which a supplier fails to deposit tax and the department has gone after the purchaser. The text of that protection will sit in the amended rules. Thursday's decision is the recommendation. States still notify.

Prime Minister Narendra Modi welcomed the package as a cut in compliance cost and a faster refund. The political frame is ease of doing business. The administrative frame is a department that has used arrest and slow refunds as leverage. Removing arrest does not remove audit, assessment or prosecution above Rs 5 crore. It removes the threat that a GST dispute ends in custody before those steps. Firms that have treated a notice as a settlement event, because the alternative was an arrest provision, lose that pressure and gain a higher bar.

The dates to watch are 1 November and 1 April. November opens the services refund under inverted duty. April opens the plant and machinery refund on a 60-month clock. The three-day, 90 percent refund rule applies as the system is switched. Until the boards change the workflow, the seven-day officer process is what a claimant still meets. The Council has decided. The portal has to follow.