GST Council Meeting: Sitharaman Flags Faceless Taxation; Arrest Powers, Refunds Among Key Reforms

The 57th GST Council meeting has shifted the focus of the next phase of Goods and Services Tax (GST) reforms from rate rationalisation to how the tax system is administered, with the Council recommending changes ranging from removal of arrest powers to faster refunds and a proposed faceless assessment system.

Finance Minister Nirmala Sitharaman said the GST Council's process reforms will be implemented from April 1, 2027, and could take about a year to stabilise.

She said the next-generation GST framework should improve ease of doing business while providing greater certainty to taxpayers and ensuring stable revenue for the Centre and states, as per PTI.

Faceless GST Assessment For Taxpayers

The government is working on a centralised tax administration system for around two lakh taxpayers that fall under Central GST jurisdiction but operate across multiple states, Sitharaman said.

The proposed framework will provide a single window for scrutiny of returns, audits, adjudication, appeals, taxpayer services and grievance redressal. Notices, hearings and orders could eventually be handled through a national platform rather than individual tax formations.

CBIC Chairman Vivek Chaturvedi said the framework is expected to be put out for public consultation by the end of 2026, per PTI.

According to Shareen Gupta, Partner, JSA Advocates and Solicitors, the proposal to introduce a centralised tax administration for assesses under central jurisdiction "should bring greater uniformity to how GST is implemented, which will particularly benefit large taxpayers."

Arrest Powers Scrapped, Prosecution Threshold Raised

The GST Council recommended complete removal of arrest powers by proposing the omission of Section 69 of the CGST Act, according to the Finance Ministry.

It also recommended raising the monetary threshold for prosecution from ₹1 crore to ₹5 crore. Other changes seek to narrow the scope of offences under Section 132 and rationalise punishments.

Sitharaman said the government is moving towards a system where taxpayers who make mistakes or fall behind on payments face recovery, interest and proportionate penalties rather than disproportionate action.

According to Onkar Sharma, Partner at Khaitan & Co, the council has left the choice of punishment to judicial discretion. He said these steps signal that procedural lapses will be treated as civil matters, not criminal ones. "For compliant businesses, especially MSMEs, this should ease much of the anxiety that has surrounded GST enforcement," he added.

Faster Refunds, Wider ITC And Lower Penalties

The Council recommended system-based processing of refunds, including automatic sanction of eligible excess cash ledger refunds and provisional payment of 90% of certain claims involving zero-rated supplies and inverted duty structures, based on risk assessment.

The acknowledgement period for refund applications is proposed to fall from 15 days to 10 days, with deemed acknowledgement where the officer does not respond within that period.

The Council also recommended extending refunds of accumulated ITC on input services for inverted duty structures to credit availed from November 1, 2026. Refund of specified capital-goods ITC will also be permitted, subject to the proposed 60-month mechanism.

The maximum general GST penalty under Section 125 is proposed to be reduced from ₹25,000 to ₹10,000. The Council also recommended a ₹10,000 minimum threshold for issuing show-cause notices.

According to L Badri Narayanan, Chairman, National Council on Indirect Taxes at ASSOCHAM, the decision to expand refunds of accumulated input tax credit will help companies with large balances in their electronic credit ledgers unlock funds and strengthen liquidity. He said unlocking these credits could improve working capital, release funds for expansion and investment, and support the competitiveness of Indian manufacturing and exports.

The proposed changes to the CGST Act could also protect developers and homebuyers from losing eligible tax credits because of tax defaults by suppliers earlier in the chain, despite having met their own obligations, said Aman Gupta, Director, RPS Group. He added that the move could ease working-capital pressures for developers, particularly those operating with tight margins and long project timelines.

Easier Registration And Compliance

The Council recommended automatic acceptance of several registration amendments, simplified cancellation procedures and a system-based mechanism for revocation of registrations after specified defaults are rectified.

Sitharaman said the rate rationalisation undertaken last year had not resulted in revenue loss and that collections had continued to grow. She said most fundamental issues relating to rates, ITC and duty inversion had now been addressed.

For taxpayers with annual turnover up to ₹5 crore, the Council recommended waiver of late fees for delayed returns if the return is filed by the end of the month in which it was due.

The Council also recommended wider ITC eligibility by removing restrictions on specified inputs and services, including outdoor catering, health and life insurance, telecommunications towers and certain pipelines.

Small sellers supplying goods through e-commerce operators will also get a simplified registration mechanism in states where they have no physical presence, subject to conditions including an ITC limit of ₹2.5 lakh per month.

The simplified mechanism could reduce the compliance burden for small online sellers, said Raghunandan Saraf, CEO of Saraf Furniture. "Before this, if a small seller wanted to sell in ten different states, they had to get ten separate GST registrations. They also needed a physical spot in each state and had to deal with local tax officials repeatedly. This made it hard for them to grow," he said.

Under the proposed mechanism, sellers could declare an e-commerce operator's warehouse as their principal place of business in states where they have no physical presence, subject to the prescribed conditions, he added.

Taken together, the recommendations mark a shift in GST administration towards greater automation, risk-based scrutiny and lower dependence on physical intervention. The proposals will, however, require changes to the GST law, rules and systems before they take effect.