GST Arrest Powers Set to Be Scrapped Amid Concerns Over Tax Authority Overreach

The Goods and Services Tax (GST) regime could undergo a major change, with the government considering removal of the power to arrest taxpayers under GST laws, more than nine years after the tax system was introduced in July 2017.

The proposal to decriminalise offences under the indirect tax regime is likely to be discussed at the 57th GST Council meeting on October 7, as the government seeks to address concerns raised by businesses over alleged overreach by tax authorities, people familiar with the matter said.

The Centre and states have held several rounds of discussions over the past eight to nine months on withdrawing the arrest provisions. The move comes amid concerns in the business community following the arrest of senior executives in recent GST cases, with industry representatives arguing that the powers have sometimes been used excessively.

Under the proposed changes, intentional fraud and deliberate tax evasion would continue to attract prosecution. However, arrests in such cases could be carried out under the Bharatiya Nyaya Sanhita (BNS) instead of the GST law, according to sources.

“The consultations have been underway for the last eight to nine months. Feedback from businesses regarding arrests has been considered. The GST Council will discuss the proposal, after which legislative amendments would be required to remove the arrest provisions from GST laws,” a source said.

Since GST was introduced, authorities have uncovered several forms of tax fraud, including the use of fake identities and mule accounts, issuance of bogus invoices and fraudulent claims of input tax credit. Other cases involve under-reporting the value of goods, suppressing taxable supplies and failing to deposit GST collected from customers with the government.

Central GST authorities recorded 72,393 GST offence cases between 2021-22 and 2024-25, resulting in 887 arrests. Arrests made by state GST authorities are separate from these figures.

The Central GST Act provides for penalties, interest and tax recovery in cases of non-compliance. However, offences involving deliberate tax evasion can attract criminal prosecution and arrest under the law.

Section 69 of the CGST Act allows the Commissioner to authorise an arrest when there are recorded “reasons to believe” that an individual has committed specified offences, including issuing fake invoices or fraudulently claiming input tax credit. Such action must be based on credible evidence rather than mere suspicion.

If the GST Council approves the proposal, the Centre is expected to introduce amendments during the Winter Session of Parliament to formally remove the arrest provisions, sources said.

Industry experts have long criticised the arrest powers, particularly in sectors such as banking and insurance. They have argued that the threat of arrest can put pressure on businesses to settle disputed tax demands or penalties rather than pursue lengthy legal proceedings.

An official said removing the arrest provisions would be a taxpayer-friendly measure and could help address concerns about fear and harassment under the GST regime.

The debate over arrest powers predates the implementation of GST. At the fifth GST Council meeting in December 2016, Maharashtra’s Additional Chief Secretary had raised concerns over whether arrest and confiscation powers were consistent with the government’s ease-of-doing-business objective.

A West Bengal minister had also pointed out that tax officials did not have arrest powers under the state’s VAT regime and questioned whether such authority should be given to GST officials.

The GST Council Secretariat had then maintained that arrest powers under GST were intended to be used only in serious cases. The provisions applied to specified offences involving tax evasion of more than Rs 2 crore, including issuing invoices without actual supply, supplying goods or services without invoices, collecting tax but not depositing it with the government, and fraudulent input tax credit claims.

The Central Board of Indirect Taxes and Customs (CBIC) has previously defended the provisions, saying they were designed to deter serious tax evasion and improve tax administration. It also highlighted safeguards requiring Commissioner-level authorisation and restricting arrests to specified offences above the prescribed threshold.

The proposed GST changes are part of a wider move towards decriminalising tax-related offences. In September, the Central Board of Direct Taxes (CBDT) removed arrest and detention provisions from tax recovery rules with retrospective effect from April 1, 2026.

The Income-Tax (Fourth Amendment) Rules, 2026, notified on September 17, also removed references to “arrest and detention” in tax recovery proceedings involving defaulters, including provisions applicable after the death of a taxpayer.