"ED-type action should be removed": Karnataka CM DK Shivakumar backs GST reforms to curb unnecessary arrests
Karnataka CM DK Shivakumar advocates for ending ED-style arrests for GST defaults, pushing for revenue recovery instead of detaining businessmen.
Karnataka Chief Minister DK Shivakumar has voiced strong support for significant reforms within the Goods and Services Tax (GST) framework, specifically targeting the practice of aggressive enforcement and the detention of business owners.
Speaking to reporters in New Delhi following the recent GST Council meeting, the Chief Minister emphasized that tax enforcement should prioritize the recovery of dues rather than the incarceration of entrepreneurs. He argued that the current trend of "ED-type action" for tax defaults is counterproductive and should be replaced with a system more aligned with the Income Tax Act.
Protecting Entrepreneurs from Overreach
Shivakumar expressed satisfaction with the outcomes of the 57th GST Council meeting, noting that key concerns raised by the Karnataka government were well-received by the federal body. He highlighted a critical distinction between collecting revenue and criminalizing non-payment.
"It is not right for officers to unnecessarily arrest businessmen. Recover whatever money is due, but arrest is not right. ED-type action should be removed," Shivakumar stated. He suggested that the focus of enforcement officers must remain on efficient revenue collection rather than pursuing punitive arrests.
According to the Chief Minister, Karnataka's stance on eliminating harsh arrest protocols for tax defaults found widespread support among nearly all states. He further noted that a committee is slated to be formed to address one of the state's core proposals, while State Revenue Minister Krishna Byre Gowda has been tasked with managing a third proposal.
Major Shifts in GST Enforcement and Penalties
The GST Council, chaired by Union Finance Minister Nirmala Sitharaman, has indeed moved toward a more lenient enforcement regime. In a major relief for the business community, the Council has completely scrapped the power of GST officers to arrest individuals for tax-related offences.
Other significant changes approved during the meeting include:
- Higher Prosecution Threshold: The monetary limit for initiating prosecution has been increased fivefold, rising from ₹1 crore to ₹5 crore.
- Reduced Penalties: The general penalty for offences without specific prescriptions has been slashed from ₹25,000 to ₹10,000, and minimum punishments have been removed.
- Judicial Oversight: Courts will now hold the authority to decide on specific fines or imprisonment, rather than automatic punitive measures.
- Small Business Relief: No GST notices or proceedings will be initiated for tax dues of ₹10,000 or below, and all existing pending notices under this threshold will be withdrawn.
Boosting Working Capital and Compliance
Beyond enforcement, the Council introduced measures to ease the financial burden on businesses. To address working capital stress, a fast-tracked, automated refund system was approved, ensuring businesses receive 90 per cent of claimed refunds within just 13 days. Additionally, the timeline for officers to acknowledge refund claims has been reduced from 15 days to 10 days.
In a move to support long-term investment, the Council approved refunds on GST paid for plant and machinery, to be spread over 60 months starting the next fiscal year. Furthermore, the scope of Input Tax Credit (ITC) has been expanded, allowing employers to claim ITC on GST paid for employee health and life insurance covers.
Regarding tax rates, the Council decided not to revise existing GST slabs at this time. Instead, rate-related matters will be reviewed only once a year at dedicated meetings to provide greater policy predictability for industries. All approved structural overhauls are set to come into effect from April 1, 2027.