GST Council to Remove Arrest Provisions and Speed Up Refunds

The government is moving towards a system where disputes are settled through the recovery of tax, interest, and penalties rather than through imprisonment. Key highlights of the proposed decriminalisation include:

• Higher Prosecution Threshold: The threshold for criminal prosecution is expected to rise from Rs 1 crore to Rs 5 crore.
• Reduced Criminal Liability: Nine offences are expected to be fully decriminalised, while one may be partially decriminalised.
• Elimination of Jail Terms: The minimum jail term is likely to be removed, allowing fines to serve as an alternative in all cases.
• Penalty Relief: Penalties for 24 different offences could be eased, while 11 will remain as they are.

This shift is made possible by the advanced invoice-matching system. By linking seller reports with buyer claims and mapping input and output ledgers, the system can now spot fake credits almost immediately, stopping them before they move further down the supply chain.

Relief for Honest Buyers and Expanded Credits

The Council is set to provide significant relief to "honest buyers." Under the new proposal, a buyer who holds a valid invoice and has already paid the supplier will be allowed to retain their Input Tax Credit (ITC), even if the supplier defaults later in the chain. In such cases, the government will direct recovery proceedings against the defaulter rather than penalising the buyer.

Furthermore, the scope of Input Tax Credit is expected to widen significantly. New categories likely to be eligible for ITC include:

• Health and life insurance premiums paid by employers for employees.
• Vehicles with a seating capacity of up to 13 people, including related insurance, servicing, and leasing.
• Telecom towers and pipelines laid outside factory premises.
• Free samples and goods destroyed upon expiry as required by law.

Faster Refunds and Automated Processing

To improve liquidity for businesses, the Council is looking at a revolutionary approach to refunds. Tax paid on services, as well as on plant and machinery, is likely to become eligible for refunds, with the latter being spread over a five-year period.

The new refund mechanism aims for unprecedented speed:

1. 10-Day Acknowledgement: Refund claims will be acknowledged within 10 days; if an officer fails to act within this window, the claim will be deemed acknowledged.
2. 90% Automatic Release: Following a risk assessment, 90 per cent of a claim is expected to be released automatically, with only the remaining balance requiring manual verification.

Small Taxpayers and Exporters to Benefit

Small businesses and exporters are also in line for major advantages. The Council may decide that no show-cause notices will be issued for amounts below Rs 10,000, providing relief for millions of pending cases. For taxpayers with a turnover of up to Rs 5 crore who supply only to unregistered persons, an optional annual return with quarterly tax payments may be introduced.

For Exporters:

The Council is expected to broaden the definition of exports. This could include supplies billed through an exporter’s own overseas branch, job work carried out in India for foreign clients, and goods sold to overseas buyers but delivered to a Special Economic Zone (SEZ). Additionally, exporters may receive retrospective relief regarding restrictions on refunds linked to duty concessions on inputs.

For E-commerce Sellers:
Small e-commerce players may soon be allowed to use a platform’s warehouse as their official place of business in other states, provided they complete a one-time verification in their home state.