57th GST Council (8 October 2026): Arrest Removed, ₹5 Crore Prosecution Threshold, 3-Day Refunds — What Is Law Today and What Is Not

Table of Contents

1. Recommendation, notification, amendment: what has legal effect today
2. Enforcement: arrest, prosecution, the ₹10,000 notice floor and e-way bill checks
3. Refunds: 90% in three working days, and the inverted-duty change on 1 November
4. Registration, amendment and cancellation
5. Exports, ITC and the items reported but not yet in the CBIC FAQ
6. Return forms: GSTR-1/1A/IFF consultation and April 2027
7. Rate clarifications that were made
8. What a mid-size business should do before 1 November and before April 2027
9. Frequently asked questions

1. Recommendation, notification, amendment: what has legal effect today

The GST Council recommends; Parliament and the State legislatures amend the Acts; the Government notifies rates, rules and dates; CBIC issues circulars. The 57th meeting produced a long list in the first category and, so far, little in the others. The table below is our reading of the CBIC FAQ (9 October 2026) and the Council's press briefing, and the "instrument needed" column is the test to apply before relying on any of it in a reply to a notice or a refund claim.

Until an amendment is enacted, Section 69 arrests, the ₹1 crore prosecution threshold and the ₹25,000 general penalty under Section 125 remain the law. A reply to a show-cause notice that cites "the 57th Council's recommendation" as a defence will not succeed; a reply that cites the Council's own finding that sub-₹10,000 demands are not worth pursuing may, as a matter of the officer's discretion, help on costs — our GST notice reply team is already framing it that way.

2. Enforcement: arrest, prosecution, the ₹10,000 notice floor and e-way bill checks

Arrest. Section 69 currently allows the Commissioner to authorise arrest where offences under Section 132(1)(a)–(d) involve tax above ₹1 crore (cognisable and non-bailable above ₹5 crore). The Council recommends deleting the power altogether; per the CBIC FAQ, "no person shall be arrested for an offence under the GST law" once the amendment is in force. Prosecution before a court on a complaint by the department remains, but only above ₹5 crore of tax evaded, with imprisonment of up to five years above ₹10 crore and up to two years between ₹5 crore and ₹10 crore — and in each case "or fine, or both", with the six-month minimum under Section 132(3) removed. Three offences are being narrowed: Section 132(1)(i) (supply of services in contravention of the Act) is omitted as unquantifiable; clause (e) is confined to fraudulently obtaining refunds; clause (h) loses the words "or in any other manner deals with". For the current law and bail position, see our note on GST arrest and bail provisions; it will be rewritten when the amendment is notified.

The ₹10,000 floor. No show-cause notice under Section 73, 74 or 74A where the tax involved is below ₹10,000. The FAQ settles the arithmetic: the threshold is met at exactly ₹10,000; it is computed on tax plus cess aggregated across CGST, SGST/UTGST and IGST (a ₹6,000 CGST and ₹6,000 SGST demand qualifies for a notice); interest, late fee and penalty are excluded from the test; wrongly availed or utilised ITC counts as tax. Notices already issued below the floor are to be withdrawn.

"Charge" instead of "penalty". Where a taxpayer pays tax and interest with the reduced penalty under Section 73(5)/(8) or 74(5)/(8) to close proceedings, the amount will be called a "charge" and deposited under "Others". The FAQ is explicit that the quantum does not change; the relabelling is to avoid the stigma of a penalty on a voluntary settlement.

Goods in transit. Random interception ends. A vehicle may be stopped only on written reasons recorded by an officer not below Joint Commissioner, and only the State of the supplier or the recipient may detain or seize under Section 129 — except where there is no e-way bill or no documents at all, when any State may act. Section 130 (confiscation) will not apply to goods in transit; Section 129 read with Section 68 is the only route. Our Section 129 penalty note covers the present law.

3. Refunds: 90% in three working days, and the inverted-duty change on 1 November

For low-risk refund claims on account of zero-rated supplies and inverted duty structure, 90% of the claimed amount is to be sanctioned provisionally by the system in Form RFD-04 within three working days of acknowledgement (currently seven days under Section 54(6) and Rule 91(2)), without officer involvement; the balance follows final scrutiny. Acknowledgement in RFD-02 or a deficiency memo in RFD-03 must issue within 10 days instead of 15, failing which the claim is deemed acknowledged. Excess balance in the electronic cash ledger will be refunded automatically. Phase II adds system validation against ICEGATE shipping bills, RBI's EDPMS for service-export realisations and SEZ Online. Notified categories — pan masala, tobacco, areca nut and similar — are excluded from provisional refund.

The substantive change is in the inverted-duty formula. Rule 89(5) defines "Net ITC" as ITC on inputs only; ITC on input services and capital goods has never been refundable under Section 54(3)(ii), a position the Supreme Court upheld in VKC Footsteps (2021). The Council recommends widening Net ITC in two steps:

• Input services availed on or after 1 November 2026 become part of Net ITC for inverted-duty refunds. The FAQ's example is a manufacturer buying inputs at 5% and services at 18% while selling at 5%: the service credit accumulates and is now refundable.
• Capital goods on which ITC is availed on or after 1 April 2027 enter Net ITC at one-sixtieth per month over 60 months, for both inverted-duty and zero-rated claims, with the proportion attributable to the relevant period computed as prescribed.

The dates are forward-looking by design: credit availed before 1 November 2026 on input services stays outside the formula, so a business with large accumulated service credit gains only on future accruals. For businesses whose rate structure inverted on 22 September 2025 — a trader buying at 18% and selling at 5% after the rate rationalisation — the November change is the first time input services enter the claim; the annual return for FY 2025-26 is where the accumulation is quantified (see our GSTR-9/9C note on the two-rate year). Rule 89(4)(C)'s cap of export turnover at 1.5 times the domestic value of like goods is withdrawn, and the ₹1,000 minimum refund in Section 54(14) is to be tested on all tax heads together. Our GST refund practice files under both routes.

4. Registration, amendment and cancellation

• Amendments. Changes to legal name, constitution of business and additional places of business become non-core and are processed automatically on filing REG-14; so does a change of principal place of business for a registration obtained under Rule 14A. A change of principal place of business otherwise still needs officer approval within 15 days.
• New registrations. A circular will prescribe a closed checklist of documents by type of premises; the officer may not ask for anything outside it. REG-01 will be re-aligned to the checklist with drop-downs and tool-tips.
• Cancellation on application. Auto-accepted where returns are filed up to the date of application and dues are paid, and where the taxpayer did not pass on more than ₹2.5 lakh of credit in any month; above that, REG-16 with the final return in GSTR-10 is processed by the system.
• Suspension and cancellation by the system. A registration suspended for six months of non-filing is cancelled by the system, and revoked by the system if the taxpayer files the pending returns and applies in REG-21 within 180 days. Four officer-initiated cancellation grounds are deleted from Rule 21, including the GSTR-1 vs GSTR-3B mismatch and the Section 16 ITC ground.
• Rule 14B. A seller on an e-commerce platform with monthly B2B output tax of up to ₹2.5 lakh may register in another State using the operator's warehouse as the place of business, with the operator's consent, and may withdraw from the scheme; the registration is deemed cancelled on withdrawal within 30 days. A seller registered under Rule 14A in the home State must opt out of 14A before using 14B.

For current practice see GST registration and our note on cancellation and revocation.

5. Exports, ITC and the items reported but not yet in the CBIC FAQ

Exports. Section 13(3)(a) of the IGST Act fixes the place of supply of services requiring goods to be made physically available to the supplier — testing, repair, calibration, R&D, clinical trials — at the location of performance, i.e. India, so these services to foreign clients have been taxed at 18% despite payment in foreign exchange. The Council recommends omitting the clause, so the default rule in Section 13(2) (location of the recipient) applies and the service is a zero-rated export under Section 16 of the IGST Act, refundable under LUT. Contract-research organisations, testing laboratories and repair centres serving overseas OEMs are the beneficiaries; see export refunds under LUT.

ITC. Three items were announced at the Council's briefing and have been widely reported, but are not in the CBIC FAQ of 9 October: ITC on employee health and life insurance (presently blocked by Section 17(5)(b) unless statutorily obligatory), on telecom towers, and on pipelines laid outside the factory (blocked by the Explanation to Section 17(5)(d)). Each needs an amendment to Section 17(5) and a notified date; until then the credit remains blocked and should not be taken. Reports of ITC on free samples and on expired stock destroyed under law, of a reduction of the Section 125 general penalty from ₹25,000 to ₹10,000, of an optional annual return for B2C-only suppliers up to ₹5 crore, and of a mechanism to correct a wrongly entered recipient GSTIN through the Invoice Management System, appear in some accounts of the meeting and not in the FAQ; we treat them as unconfirmed until a notification or the Council's minutes say otherwise. A Committee of Officers is to report within three months on protecting a bona fide recipient — valid invoice, goods received, supplier paid — from Section 16(2)(c) denial where the supplier defaults; our ITC-denial appeal strategy covers the present position.

6. Return forms: GSTR-1/1A/IFF consultation and April 2027

The Council approved a redesign of GSTR-1, GSTR-1A and the Invoice Furnishing Facility so that outward-supply data reconciles to GSTR-3B at the field level, together with an alternate mechanism for amending liabilities and ITC in returns. The Finance Ministry has said the draft forms go to public consultation on the MyGov portal from 1 November to 30 November 2026, with implementation proposed from 1 April 2027. Nothing changes for FY 2025-26 or FY 2026-27 filings; the forms you file in December 2026 are the current ones. We will publish a line-by-line comparison when the drafts are released.

7. Rate clarifications that were made

No slab moved — rate matters are to be taken up once a year — but the Council clarified classification and exemption on several items, most of which are already reflected in Notification No. 9/2025-Central Tax (Rate): sea-weed extract bio-stimulants are fertilisers under heading 3101 only if registered under Schedule VI of the Fertiliser Control Order, 1985 (past cases regularised "as is"); the toy entries cover all toys under heading 9503; a dealer in second-hand cars under the margin scheme may take ITC on repairs and spares but not on the car; EV passenger transport and rental with operator take the same rate as conventional vehicles where charging is included; registration, road tax, insurance and FASTag recovered under a lease follow the lease rate; GTA services through an e-commerce operator are 5% without ITC or 18% with ITC and the Entry 21A exemption does not apply; exclusive toll-collection rights granted by a government body are exempt; storage of seeds for sowing is exempt; coffee curing (other than roasting) for cultivators is exempt; services administering the Seamen's Provident Fund are exempt; and TDS under Section 51 and reverse charge are extended to plastic, tyre, e-waste and used-cooking-oil scrap on the pattern already applied to metal scrap. Each of these takes effect through its own notification or circular.

8. What a mid-size business should do before 1 November and before April 2027

1. If your rate structure is inverted (output at 5%, inputs or services at 18%), set up the inverted-duty refund working now so that input-service credit from 1 November 2026 is captured separately; RFD-01 for the November 2026 tax period is the first claim in which it enters Net ITC.
2. If you plan capital expenditure, note that capital-goods ITC availed before 1 April 2027 never enters the refund formula; where a project can be timed, the credit date matters.
3. If you have a pending SCN below ₹10,000 of tax, write to the officer citing the Council's recommendation and the CBIC FAQ and ask for withdrawal; do not ignore the notice meanwhile — the Section 73/74A time limits still run.
4. If you export testing, repair or R&D services on goods brought into India, do not change your invoicing until Section 13(3)(a) is actually omitted; a premature LUT export invoice is a demand with interest.
5. Do not take ITC on employee insurance or pipelines yet. Credit taken before the amendment is "wrongly availed" under Section 16 and attracts interest under Section 50(3) if utilised.
6. Review the GSTR-1/1A drafts in November and file comments if your industry's invoicing (continuous supply, e-commerce, exports) is not accommodated; this is the last open window before the April 2027 forms are fixed.
7. Finish the FY 2025-26 annual return first. Every reconciliation gap found in GSTR-9/9C is a notice that the new ₹10,000 floor will not stop — and for companies the GSTR-9C and the AOC-4 (relaxed to 31 December 2026 by MCA General Circular 05/2026) now fall due on the same day.

9. Frequently Asked Questions (FAQs)

Has the GST arrest provision been removed?

Not yet. The 57th GST Council recommended removing it, and CBIC's FAQ of 9 October 2026 says no person will be arrested once the amendment is in force, but Section 69 of the CGST Act stands until Parliament and the State legislatures amend it. Prosecution will continue for evasion above ₹5 crore.

Is it true that no GST notice will be issued for amounts below ₹10,000?

That is the recommendation for show-cause notices under Sections 73, 74 and 74A: the threshold is the aggregate tax (CGST + SGST/UTGST + IGST + cess) involved, excluding interest, late fee and penalty, and wrongly availed ITC counts as tax. It needs an Act amendment; pending notices below the floor are to be withdrawn.

From when can input services be included in an inverted-duty refund claim?

For ITC on input services availed on or after 1 November 2026, per the CBIC FAQ. Capital goods enter the formula for ITC availed on or after 1 April 2027, at one-sixtieth per month. The amended Rule 89(5) is awaited; credit availed before those dates is not refundable.

Did the 57th Council change any GST rates?

No. It clarified classification and exemption on a list of goods and services (bio-stimulants, toys, used-car dealers, EV rentals, GTA through e-commerce, toll rights, seeds, coffee curing) and decided that rate changes will be considered once a year.

Can I claim ITC on my employees' group health insurance now?

No. The change was announced at the Council's briefing but is not in the CBIC FAQ and needs an amendment to Section 17(5)(b) with a notified date. ITC taken before that is wrongly availed and attracts interest under Section 50(3) if utilised.

When do the new GSTR-1 forms apply?

The redesigned GSTR-1, GSTR-1A and IFF are proposed from 1 April 2027, after public consultation on MyGov from 1 to 30 November 2026. Returns for FY 2025-26 and FY 2026-27 are filed in the current forms.

Conclusion

The 57th Council is the most significant procedural meeting since the 2017 rollout: arrest goes, prosecution starts at ₹5 crore, small demands stop, refunds move to the system, and input services finally enter the inverted-duty formula. But on 24 October 2026 only two dates — 1 November 2026 and 1 April 2027 — have legal substance; the rest is a legislative programme. Plan the refund working and the capital-expenditure timing around those dates, keep replying to notices under the law as it stands, and watch for the amendment Bill and the Rule 89 notification. If you want the inverted-duty claim built before November, or a pending notice below the new floor taken up with the officer, our GST refund and notice reply teams are handling both, reviewed by CA V. Viswanathan (FCA, ACS, CFE) before filing.