GST Council may scrap arrest provisions, fast-track refunds with 90% automatic payout
The 57th GST Council may remove arrest provisions and introduce 90% automatic refunds to ease business compliance.
In a significant move to ease the compliance burden on businesses, the 57th GST Council meeting is expected to consider major reforms aimed at simplifying tax procedures. According to Finance Ministry sources, the proposals include the removal of arrest provisions under the Goods and Services Tax (GST) law and a revolutionary change to the refund process, allowing 90 per cent of eligible claims to be released automatically after a risk assessment.
Major Shift in Tax Enforcement
The proposed changes suggest a fundamental shift in how tax enforcement is handled. Instead of immediate arrest, the new framework aims to rely on civil consequences such as tax recovery, interest, and penalties. While prosecution would remain an option for serious offenses, the threshold for such prosecution is proposed to be raised from Rs 1 crore to Rs 5 crore.
An expert committee reviewing GST-related offenses has recommended a massive overhaul of the current legal structure:
- Offense Removal: Nine offenses could be removed entirely, with one more being partially removed.
- Softened Penalties: 24 offenses would be "softened," while 11 would be retained.
- Sentence Reductions: The maximum sentence for middle-category offenses could drop from three years to two years.
- Flexible Sentencing: The proposal aims to remove minimum sentences and provide a fine option in every case.
Revolutionary Refund System for Exporters
For businesses, particularly exporters, the proposed reforms could be a game-changer. To prevent liquidity crunches, the Council is looking at a system where 90 per cent of eligible refund claims are released automatically following a risk check. The remaining amount would be released only after manual verification.
Key highlights of the proposed refund framework include:
- Faster Processing: Refund applications would be acknowledged within 10 days. If an officer fails to act within this period, the application will be deemed acknowledged.
- Data Integration: The system will leverage data from the Reserve Bank of India (RBI) and customs to reduce the need for businesses to submit scanned documents manually.
- Expanded Coverage: The framework is set to widen to include services as well as plant and machinery. Refunds on plant and machinery would be available over a five-year period.
- Exporters Benefits: Duty drawback exporters would become eligible for refunds, and the existing cap against domestic prices is expected to be removed.
This move is expected to benefit approximately 38,700 taxpayers who currently claim export refunds.
Relief for Small Taxpayers and Simplified Compliance
The Council is also looking at ways to reduce the administrative burden for smaller entities. One major proposal is that show-cause notices would not be issued for amounts below Rs 10,000 under specified GST provisions. This would apply to pending adjudication, appeals, and tribunal cases. Ministry data indicates that since 2017, around 11.3 lakh notices have been issued at or below this amount.
Other relief measures for small taxpayers include:
- Waiver of late fees for delayed returns.
- Rationalization of general penalties.
- Automatic registration for eligible applicants within three working days.
The current focus of these measures, according to sources, is on clarifying existing provisions and improving compliance rather than changing GST rates. These proposals are now subject to final consideration by the GST Council during its upcoming meeting.