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GST Council to Review De‑criminalisation of Tax Offences and Arrest Powers

NEWZA Editorial Team•

⚡ Key Financial Takeaways

  • The GST Law Committee is proposing to eliminate the Section 69 arrest provision for GST investigations.
  • Prosecution thresholds may be doubled, moving the minimum tax evasion amount from Rs 5 crore to Rs 10 crore.
  • Maximum imprisonment for GST offences could be reduced: five years for >Rs 5 crore, three years for Rs 2‑5 crore, and one year for Rs 1‑2 crore.
  • Criminal prosecution would still be possible under the Indian Penal Code or the BNS Act if fraud is proven.
  • Onkar Sharma of Khaitan & Co says the move separates tax recovery from personal liberty.

💡 Why It Matters

Removing arrest powers and raising prosecution thresholds could reduce the punitive pressure on businesses, encouraging compliance while preserving the ability to pursue serious fraud through criminal courts. The shift may also signal a broader move toward de‑criminalising tax administration in India, affecting how tax disputes are handled and potentially influencing investor confidence.

GST Council set to debate de‑criminalisation The upcoming GST Council meeting will focus on a set of reforms aimed at softening the criminal aspect of the indirect‑tax regime. Sources close to the discussions say the Law Committee, which includes officials from the Centre and the States, will consider removing the standalone arrest powers granted to GST officers under Section 69 of the CGST Act.

What Section 69 currently allows Under the present framework, a Commissioner can authorise the arrest of a taxpayer if there is reason to believe a serious offence under Section 132 has been committed – for example, fake invoicing, fraudulent input‑tax credit claims, bogus refunds or deliberate tax evasion.

Proposed changes The Committee’s draft suggests that GST officers would no longer have a direct route to arrest a taxpayer during an investigation. Instead, any criminal prosecution would have to proceed under the broader criminal law, such as the Indian Penal Code or the Benami Transactions (Prohibition) Act, where the facts warrant it.

Onkar Sharma, Partner at Khaitan & Co, explained, “The proposal seeks to separate tax administration and tax recovery from personal liberty. Criminal prosecution could still be pursued under the general criminal law, including the BNS, where the facts justify it.”

Raising the prosecution threshold Another recommendation is to increase the monetary floor for initiating prosecution. Currently, offences involving tax evasion or wrongful input‑tax credit of at least Rs 5 crore trigger criminal action. The Committee proposes to raise this limit to Rs 10 crore, effectively narrowing the pool of cases that would face prosecution.

Reducing jail terms The draft also calls for a reduction in maximum imprisonment periods for GST offences: - Offences above Rs 5 crore: up to five years (currently five years). - Offences between Rs 2 crore and Rs 5 crore: up to three years (currently three years). - Offences between Rs 1 crore and Rs 2 crore: up to one year (currently one year). These changes aim to align penalties more closely with the severity of the financial loss.

Next steps The Council will deliberate on these proposals in its forthcoming session. Any amendment will require consensus among the Centre and the States before being incorporated into the GST law.

--- *The information is based on statements from sources familiar with the GST Council’s agenda and comments from tax expert Onkar Sharma.*

🏛️ Background & Context

Section 69 of the CGST Act has been a point of contention since the GST rollout, with industry bodies arguing that arrest powers are disproportionate for tax matters. The GST Law Committee periodically reviews legal provisions to balance enforcement with ease of doing business.

👁️ What To Watch Next

Watch for the GST Council’s final decision on the de‑criminalisation proposals, any amendments to the CGST Act, and subsequent reactions from state governments and industry groups. Implementation timelines and any accompanying guidelines will be critical for taxpayers.

Topics:#GST#Tax Law#Decriminalisation#India#Indirect Tax
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