57th GST Council: arrest power to go, prosecution threshold ₹5 crore, automatic refunds and wider input tax credit recommended

What the Council met on

The 57th meeting of the GST Council was held in New Delhi on 8 October 2026, chaired by the Union Finance and Corporate Affairs Minister. The 56th meeting had been about rate rationalisation; this one, the official release says, was mainly about process reforms — registration, returns, refunds and adjudication — along with clarifications on certain goods and services. FAQs are being issued separately.

These are recommendations. The release ends with a note that they will be given effect through circulars, notifications and law amendments, “which alone shall have the force of law”. Several items need a change in the CGST Act or the IGST Act, and most carry no date yet.

Arrest, prosecution and penalties

Within section 132(1) of the CGST Act, the Council recommended omitting clause (i), deleting the words “evades tax” in clause (e) and “or in any other manner deals with” in clause (h), and narrowing clause (c) to fraudulent availment of input tax credit without receipt of goods or services or without an invoice or bill. The punishment for the various offences is to be rationalised.

In non-fraud cases, a reduced penalty of 5% is recommended where tax and interest are paid within 30 days (section 73) or 60 days (section 74A) of the adjudication order. Pending notices and appeals involving less than ₹10,000 are to be decided as if the ₹10,000 threshold had been in force when the notice was issued. A circular is to guide officers on the quality and timing of demand notices and orders, on invoking fraud or suppression only on merits, and on personal hearings.

Refunds

Section 54 of the CGST Act and the rules are to be amended for system-based processing, in two phases.

• Phase 1: the full refund of excess balance in the electronic cash ledger is sanctioned automatically by the system. The time for an acknowledgement or deficiency memo comes down from 15 days to 10, with deemed acknowledgement after that. For zero-rated supplies and inverted duty structure, 90% of the claim is sanctioned provisionally by the system, based on its own risk evaluation.
• Phase 2: automated acknowledgement and, for zero-rated supplies, automated sanction of the full claim after adjusting pending dues.

FORM GST RFD-01 is to capture details in a system-readable format, so scanned documents need not be uploaded for zero-rated and inverted-duty claims. The cap in rule 89(4)(C) — turnover of zero-rated goods limited to 1.5 times the value of like goods supplied domestically — is to go. The ₹1,000 threshold in section 54(14) will apply to the total of CGST, SGST/UTGST and IGST. Section 115 is to become a standalone provision on the rate of interest on refund of pre-deposit.

Input tax credit

• Refund of accumulated credit: on capital goods for zero-rated supplies, and on input services and capital goods for inverted duty structure. For input services, it covers credit availed on or after 1 November 2026. For capital goods, the refund is spread over 60 months and covers credit availed on or after 1 April 2027.
• Blocked credits: section 17(5) is to be amended to remove the restriction on, among others, outdoor catering, health and life insurance, telecommunication towers, pipelines laid outside factory premises, free samples, and goods destroyed or written off on expiry of shelf life as required by law.
• Rule 86A: a taxpayer will be able to file an objection against blocking of the electronic credit ledger and get a personal hearing before the officer decides.

Registration

• A comprehensive circular with FAQs on the documents needed, and drop boxes in FORM GST REG-01 for selecting them.
• Rule 19: amendments to registration particulars accepted automatically on the portal, except the principal place of business; for those registered under rule 14A (the automatic route), that too.
• Cancellation on the taxpayer’s application in FORM GST REG-16 accepted automatically once pending returns are filed and dues paid — in the first phase where credit passed on never exceeded ₹2.5 lakh in a month, or where FORM GSTR-10 was filed in time; in the second phase for everyone.
• Some grounds for cancellation by officers under rule 21 to be dropped; a new rule 23A for system-based cancellation and revocation for not filing returns or not giving bank account details.
• New rule 14B: a small supplier selling goods through an e-commerce operator can register in a State where it has no physical presence by declaring the operator’s warehouse as its principal place of business, where it intends to pass on credit of not more than ₹2.5 lakh a month. Registration is granted automatically, subject to conditions.

Returns

An alternate mechanism for amending liability and credit in returns is recommended from the return of April 2027, and the proposal is to be put out for time-bound public consultation. It includes new rules 86C (Electronic Credit Reversal and Reclaim Statement) and 86D (statement of tax paid on reverse charge and credit claimed), sub-rules (1A) and (1B) in rule 61 to align GSTR-3B with GSTR-1/1A/IFF and GSTR-2B, sub-rule (6A) in rule 60 on the Invoice Management System, and invoice details in FORM GST DRC-03.

Two more items for small businesses: a waiver of late fee for taxpayers with turnover up to ₹5 crore if the delayed return under section 39(1) is filed by the end of the month in which it was due; and in-principle approval of a concept note for an optional Annual Return Quarterly Payment (ARQP) scheme for taxpayers up to ₹5 crore who supply only to unregistered persons.

E-way bill and goods in transit

Sections 68, 129 and 130 are to be amended so that a conveyance can be intercepted only on specific intelligence and with the authorisation of an officer not below Joint Commissioner. Detention or seizure can follow only where the supplier or the recipient is located or registered in the State of interception — not in transit States — and confiscation under section 130 will not apply to goods or conveyances in transit. The exception: where no e-way bill was generated, or no document shows the origin or destination of the goods.

Exports and services

• Section 2(6)(v) of the IGST Act to be omitted, so that services supplied to a foreign office or branch of the same entity can qualify as export of services.
• Section 13(3)(a) of the IGST Act to be omitted — where the recipient makes goods physically available to the service provider, the place of supply follows the recipient’s location under section 13(2).
• An explanation to section 16(1) of the IGST Act: goods supplied to an overseas buyer but delivered to that buyer in an SEZ or FTWZ, with payment in convertible foreign exchange or permitted rupees, are deemed a supply to the SEZ/FTWZ.
• Transfer of title in intellectual property, temporary or permanent, to be treated uniformly as a supply of services (Schedule II).
• E-invoicing to extend to reverse-charge supplies received from unregistered persons and to import of services, for taxpayers with turnover of ₹5 crore and above.

Rates and clarifications

Circulars are also to come on the Input Service Distributor mechanism, credit for banks and NBFCs opting for section 17(4), pre-deposits, credit on demonstration vehicles, and the omission of rule 96(10) being effective from 23 October 2017 in line with the Supreme Court’s decision.

What to do now

Nothing changes in your returns or notices today. Three dates in the release are worth noting for planning: credit on input services availed from 1 November 2026 and on capital goods availed from 1 April 2027 will count for the new refunds, and the new return-correction mechanism is proposed from the April 2027 return. Watch for the notifications and for the Bill carrying the amendments to the CGST and IGST Acts.