GST Council to review proposal to scrap tax arrest powers

The Goods and Services Tax regime is set for a major overhaul with a proposal to remove arrest powers, following discussions held over the last eight to nine months by the Centre and states. The upcoming GST Council meeting on October 7 will take up this plan to decriminalise offences under the indirect tax regime. The move aims to boost investor sentiment and address concerns about overreach by tax authorities.

Offence Details

For intentional frauds and deceit, authorities will proceed with prosecution through the criminal code, the Bharatiya Nyaya Sanhita. Between 2021-22 and 2024-25, central GST formations made 887 arrests across 72,393 offence cases, with state authorities making additional arrests. Section 69 of the Central GST Act currently allows arrests upon commissioner approval when credible evidence shows tax evasion related to fake invoices or fraudulent input tax credit.

Background

Concerns about tax arrest powers date back to early consultations before the July 2017 GST rollout. Officials from Maharashtra and West Bengal raised objections in December 2016, noting that arrest powers conflicted with ease of doing business and differed from prior VAT laws. Meanwhile, the Central Board of Direct Taxes removed arrest and detention provisions from direct tax recovery rules in September.

Context

Tax authorities enforce strict compliance measures to deter evasion, but industry leaders have argued that certain enforcement powers create unnecessary fear among businesses. Major tax overhauls typically require extensive coordination between central and state governments through a consensus-driven council before legislative amendments can be introduced in Parliament.