The GST Council Has Recommended Ending Arrest and Lightening Penalties —Your Pending Notice Is Still Governed by Today's Law

The 57th meeting of the GST Council, held in New Delhi on 8 October 2026, produced the most significant set of enforcement-side recommendations since GST began. The Council has recommended withdrawing the power of arrest altogether, raising the monetary threshold for prosecution, setting a floor below which no show cause notice may issue, and reducing several penalties. For a business in Uttar Pradesh that is already answering a summons, a search follow-up or a demand notice, the natural question is whether any of this helps today.

The short answer is: not yet. The Government's own press release closes with the caution that the recommendations "would be given effect through the relevant circulars/ notifications/ law amendments which alone shall have the force of law". Almost everything discussed below requires an amendment to the CGST Act, 2017 by Parliament — and to the corresponding State Acts, including the UPGST Act, 2017. As of 24 October 2026 we have not found any such amendment enacted. Until it is, notices, orders and limitation periods run under the law as it stands.

1. Arrest: the proposal to omit Section 69

Today, Section 69 allows the Commissioner, on reasons to believe that a person has committed an offence under clauses (a), (b), (c) or (d) of Section 132(1) — supplying without invoice, invoicing without supply, availing credit on such invoices or without any invoice, and collecting tax but not paying it over beyond three months — that is punishable under clause (i) or (ii) of that sub-section, to authorise an officer to arrest that person. Clauses (i) and (ii) cover amounts above ₹2 crore.

The Council has recommended the "complete withdrawal of arrest powers under GST by omission of section 69". That is a recommendation for the future. It does not by itself touch the powers of inspection, search and seizure under Section 67 or of summons under Section 70, and the release proposes no change to them. A summons received today must still be answered.

2. Prosecution: a higher threshold and narrower offences

Under Section 132(1) as it stands, imprisonment of up to five years applies where the tax evaded, credit wrongly availed or refund wrongly taken exceeds ₹5 crore; up to three years where it exceeds ₹2 crore but not ₹5 crore; and, for the offence of issuing an invoice without supply under clause (b) alone, up to one year where it exceeds ₹1 crore but not ₹2 crore. Prosecution requires the previous sanction of the Commissioner under Section 132(6).

The Council has recommended:

• raising the monetary threshold for prosecution from ₹1 crore to ₹5 crore;
• omitting clause (i) of Section 132(1), deleting the words "evades tax" from clause (e), and deleting the words "or in any other manner deals with" from clause (h);
• confining clause (c) to the fraudulent availment of input tax credit without receipt of goods or services, or without an invoice or bill; and
• rationalising the punishment for the various offences in Section 132.

3. Show cause notices and penalties under Sections 73, 74 and 74A

This is the part most likely to affect ordinary businesses. The Council has recommended amending Sections 73, 74 and 74A to provide for:

• A ₹10,000 floor. No show cause notice where the tax involved (CGST + SGST + IGST + Cess) is less than ₹10,000. The Council also recommended a statutory provision under which notices and appeals below ₹10,000 that are pending when the threshold comes into force will be decided as if the threshold had applied when the notice was issued.
• A 5% penalty for prompt payment in non-fraud cases, where tax and interest are paid within 30 days of the adjudication order (under Section 73) or 60 days (under Section 74A).
• No ₹10,000 minimum penalty in non-fraud cases. Today, Section 73(9) and Section 74A(5)(i) prescribe a penalty of ten per cent of tax or ten thousand rupees, whichever is higher.
• Penalty deemed a "charge" where the full tax is voluntarily paid with interest and penalty within the specified time.

Alongside these, the Council recommended a circular giving officers comprehensive guidelines on the quality and timeliness of demand notices and orders, on invoking fraud, wilful misstatement or suppression "only based on merits in each case", and on personal hearings. Separately, the maximum general penalty under Section 125 — today "twenty-five thousand rupees" for contraventions with no separately prescribed penalty — is recommended to come down to ₹10,000.

A recommendation is a direction of travel, not a defence. The reply to a notice in hand must still be drafted against the section as it reads today.

4. One recommendation that cuts the other way

Not every proposal favours the taxpayer. The Council has also recommended "introduction of a validation clause in CGST Act, 2017, for validation of notices which have been held invalid by various courts on the ground of having been issued for multiple financial years". A business whose challenge to a composite, multi-year notice rests on that ground alone should expect the ground to be contested, and should make sure the reply answers the merits as well.

5. Credit blocking and goods in transit

Two further recommendations bear directly on enforcement:

• Rule 86A of the CGST Rules is to be amended to let a taxpayer file an objection against blocking of an amount in the electronic credit ledger, and to be heard before the proper officer decides that objection.
• Sections 68, 129 and 130 are to be amended so that a conveyance can be intercepted only on specific intelligence and with the authorisation of an officer not below Joint Commissioner; detention or seizure only where the supplier or recipient is located or registered in the intercepting State, not in transit States (subject to an exception where no e-way bill or origin/destination document is carried); and confiscation under Section 130 not applying to goods or conveyances in transit. Today's position on detention under Section 129 continues until then.

For appeals against penalty-only orders, the Council has recommended a cap of ₹40 crore (₹20 crore CGST and ₹20 crore SGST/UTGST) on the pre-deposit under the provisos to Sections 107(6) and 112(8) — relevant to the pre-deposit on penalty-only orders discussed earlier.

What to do now if a notice, summons or order is in hand

The direction set by the Council is clearly towards fewer notices, smaller penalties and less coercive enforcement. But the distance between a Council recommendation and an enforceable provision is a full legislative cycle, and the State Acts must follow the Central Act. For anyone already in proceedings, the useful course is to deal with the notice on today's law while keeping the record in a shape that can take advantage of the amendments if and when they arrive.