57th GST Council Meeting: Arrest Powers Removed, Refunds Automated, Credit Opened Up

To understand this meeting you need the one before it.

On 3 September 2025, the 56th GST Council meeting collapsed four rate slabs into two. The 12% and 28% slabs went; a 5% merit rate and an 18% standard rate remained, with a 40% rate reserved for a short list of luxury and sin goods. Most of it took effect from 22 September 2025. That exercise was branded GST 2.0.

A year on, the Council placed the results on the table:

Read together, those numbers say something simple: the rate came down and the base grew faster. Liability rose 13.6% even as the effective rate fell, because far more supply was reported. B2C reporting in particular grew faster than the system as a whole, which usually means business that was previously outside the books has come inside it.

Process note: the proposals went through three National Coordination Meetings of Central and State officers over the past year, plus several sittings of a smaller officers' group, before reaching the Council. Participants at the 57th meeting included the Chief Ministers of Delhi, Goa, Haryana, Jammu & Kashmir, Karnataka, Kerala, Maharashtra and Meghalaya, the Deputy Chief Ministers of Manipur and Telangana, State and UT Finance Ministers, the Secretary (Revenue), and the Chairman and Members of the CBIC.

This is the decision that changes the relationship between a taxpayer and the department.

A short history of Section 69

When GST began on 1 July 2017, Section 69 of the CGST Act allowed a Commissioner to authorise the arrest of a person believed to have committed specified offences under Section 132. Above ₹5 crore of tax the offence was cognizable and non-bailable; between ₹2 crore and ₹5 crore it was bailable. The power was inherited in spirit from Central Excise and Service Tax, and was justified at the time as the only real deterrent against fake invoicing in a system that had no way of seeing a fraud as it happened.

In practice it became the most contested power in GST. High Courts across the country heard a steady stream of anticipatory bail petitions. The recurring complaint from trade was that the threat of arrest was being used to secure payment during investigation, before any demand had been adjudicated and tested.

Relief came in stages. At the 48th Council meeting on 17 December 2022, three offences under Section 132(1) — obstructing an officer, tampering with material evidence and failing to supply information — were decriminalised, the prosecution threshold was doubled from ₹1 crore to ₹2 crore (fake invoice cases excepted), and the compounding range was brought down from 50%–150% of tax to 25%–100%. That was decriminalisation at the edges. Section 69 itself stayed on the statute book.

Prosecution is narrowed at the same time

Removing arrest without touching prosecution would have achieved little, so Section 132 has been reworked alongside it:

Most GST litigation is not about fraud. It is about small mismatches that never should have become a case.

The problem being fixed

Roughly 95,000 system-generated notices are issued every year on differences between returns. Recovery against them works out to about 0.08% of the amount involved. In other words, well over 99% of what those notices demand is never collected, because there was nothing to collect: they are overwhelmingly data-entry problems. Yet each one consumes a reply, often a hearing, sometimes an appeal, and always a taxpayer's time and professional fees.

Section 17(5) is the list of things you buy for your business on which GST law refuses to give you credit. It has barely moved since 2017.

Why a blocked list existed at all

The promise of GST was a seamless chain: tax paid at each stage is credited at the next, so that only the final consumer bears the burden. Section 17(5) was the exception written into that promise. It blocked credit on motor vehicles, food and beverages, health services, club memberships, works contracts for immovable property, goods lost or written off, free samples, and more. The reasoning was that these items are either consumed personally or hard to police — so credit was denied by rule, rather than tested case by case.

The cost of that shortcut has been real. A telecom company pays GST on the towers that are its network, and gets no credit. A refiner pays GST on a pipeline running from its factory to a port, and gets no credit. An employer buys group health insurance for its workers — often because labour law requires it — and gets no credit. Every one of those taxes becomes a cost embedded in the final price. That is cascading, the precise defect GST was created to cure. Disputes followed — the Supreme Court's decision in Safari Retreats on immovable property credit being the most prominent — but the list itself stayed.

Credit in the same line of business

There is a second, subtler fix. Several services carry a 5% rate without input tax credit — a deliberate trade-off made at the 56th meeting and before. The difficulty arises when such a service is bought and sold again in the same line of business. A tour operator books a hotel room and sells it on; a travel platform buys passenger transport and resells it. Tax was paid at both stages with no credit in between, so the same service was taxed twice.

The Council has recommended limited ITC in the same line of business for:

• Restaurant and outdoor catering services
• Hotel accommodation up to ₹7,500 per unit per day
• Gym and fitness services

This mirrors the treatment already available for passenger transportation, tour operator services and renting of motor vehicles. In plain terms: a service resold within the same line of business will now bear tax once, not twice.

Other ITC clarifications promised by circular

• Input Service Distributor (ISD): the mechanism for distributing input service credit, now mandatory, is to be clarified
• Banks, financial institutions and NBFCs opting for Section 17(4) — the 50% option — get clarity on availment
• Demonstration vehicles: admissibility of credit in specified situations, a recurring dispute for auto dealers
• Second-hand vehicle dealers under the margin scheme may avail ITC on spares, repair and maintenance, technology services, rent, marketing and advertisement. The restriction applies only to tax paid on the second-hand vehicles themselves
• Pre-deposits: various issues on payment of pre-deposit to be clarified

Two separate reforms here. One is about speed. The other is about how much you can claim at all — and it reverses a Supreme Court outcome from 2021.

Part 1 — What you can claim: the inverted duty structure story

An inverted duty structure arises where the GST on what you buy is higher than the GST on what you sell. Credit piles up and never gets used, because output tax is never large enough to absorb it. Textiles, footwear, fertilisers, solar equipment, EV components and parts of pharma have all lived with this.

Section 54(3) allows a refund of that accumulated credit. But Rule 89(5) prescribed a formula that counted only inputs — goods. Tax paid on input services was excluded, and tax on capital goods was excluded entirely, for inverted-duty claimants and exporters alike.

That exclusion was challenged. The Gujarat High Court struck the formula down in VKC Footsteps; the Madras High Court upheld it in Tvl. Transtonnelstroy. In September 2021 the Supreme Court upheld the validity of Rule 89(5), holding that Parliament is entitled to make policy choices on fiscal matters — but it expressly flagged the anomalies in the formula and directed the GST Council to reconsider it. Five years later, the Council has.

Part 2 — How fast you get it: automation in two phases

Today a refund claim is filed, an officer acknowledges it (or issues a deficiency memo), an officer scrutinises it, an officer sanctions it. Each step is a queue. Roughly 65% of all refund claims relate to exports or an inverted rate structure, and about 55% of those are already rated low risk by the system. A further 19% are simply excess balances lying in the electronic cash ledger — money that is already with the Government and that no one disputes.

Supporting changes that remove old friction

• FORM GST RFD-01 redesigned to capture details in a system-readable format. For zero-rated and inverted duty claims, the requirement to upload scanned documents is dispensed with. Shipping particulars will be drawn from Customs and payment particulars from the banking system, rather than re-keyed by you
• Rule 89(4)(C) restriction removed. The cap that limited zero-rated turnover of goods to 1.5 times the value of like goods supplied domestically goes. This rule, introduced in 2020 as an anti-overvaluation measure, caught many genuine exporters whose export prices legitimately exceed domestic prices
• The ₹1,000 minimum refund threshold under Section 54(14) is clarified to apply to the total of CGST, SGST/UTGST and IGST taken together, not to each separately
• Rule 96(10) omitted with effect from 23.10.2017, in line with the Supreme Court's decision. This is significant: Rule 96(10) restricted IGST refunds for exporters who had used concessional-duty import schemes such as Advance Authorisation or EPCG, and generated a very large volume of demands. Its removal from inception should close those matters

Getting a GST registration has been slow and unpredictable. Surrendering one has been worse.

Where things stand today

Following the 56th meeting, Rule 14A introduced an automatic registration route: the portal grants registration within three working days, with no officer involvement, where the applicant does not intend to pass on ITC of more than ₹2.5 lakh per month, and is assessed as low risk. 61% of registrations now come through this automated route. The remaining 39% go to an officer, and that is where the delays, the queries and the rejections sit.

Closing a business: the reform nobody campaigned for and everybody needed

Surrendering a GST registration has been one of the most frustrating processes in the system. The application sits for months. The final return in FORM GSTR-10 is a separate step afterwards, which many taxpayers never realise is pending. Meanwhile the registration stays live, returns keep falling due, and late fees keep accruing on a business that stopped trading long ago.

This is the most technical section, and the one with the longest runway. Mark April 2027 in your calendar.

Where the mismatches come from

GST asks you to report the same transaction in more than one place. Outward supplies go in GSTR-1; the summary and payment go in GSTR-3B; your credit is handed to you in GSTR-2B, built from what your suppliers filed. When those do not line up — because of a typo, a credit note recorded in the wrong place, an RCM entry reported inconsistently, or a buyer's GSTIN keyed in wrongly — the system issues a notice. Hence the 95,000 notices a year with a 0.08% recovery rate.

A particular weak point: when a seller reduces something already reported, the reduction often did not reach the buyer who had already claimed credit on it. The chain broke silently.

Ask any transporter what GST feels like in practice and this is what they will describe.

The problem

The e-way bill was introduced from 1 April 2018 for inter-State movement, precisely to replace physical checkposts with an electronic document. The checkposts came down. The interceptions did not. A consignment travelling from Mumbai to Guwahati crosses five or six States, and under Section 68 a mobile squad in every one of them could stop it, inspect it, and under Sections 129 and 130 detain, seize or even confiscate the goods and the vehicle. A clerical error in a vehicle number could hold up a truck for days in a State that had no revenue interest in the consignment at all.

The documents are still required and are still matched in the system. What changes is the sequence: a physical check now follows information, instead of preceding it. For a logistics operator, the gain is predictable transit times — which is the thing that actually drives freight cost.

This single rule could change who gets to sell online in India.

The barrier

GST is a destination-based tax administered State by State. If you store goods in a warehouse in another State, you have a place of business there, and you need a registration there — which requires a principal place of business in that State, with a rent agreement, electricity bill and the rest. A large seller opens warehouses in twelve States and registers in twelve States. A woman running a handicraft business from home in Nagpur cannot. So she sells within Maharashtra, while national brands sell to her customers everywhere.

The 56th Council gave in-principle approval to fix this. The 57th has written the rule.

One rule for every platform — Section 9(5)

Section 9(5) makes the platform, rather than the supplier, liable to pay tax on certain notified services — cab rides, food delivery, and so on. The difficulty is that platforms are built on different commercial models. Some contract as principal, some as agent, some as a pure marketplace. Reading the same provision against those different structures produced different answers, so the same delivery to the same customer could carry a different tax depending on how the platform had arranged its paperwork.

Section 9(5) is to be amended to make the ECO's liability clear irrespective of the business model being followed. The tax turns on the service actually delivered, not on the contracting structure. The same delivery bears the same tax, whichever way it is routed.

Delivery services through platforms

• Delivery services other than courier and postal, supplied through an ECO under Section 9(5), where the person supplying them is not liable for registration under Section 22(1): taxed at 5% without ITC, with the ECO liable. This covers the large population of gig delivery partners
• Delivery services in relation to goods supplied or ordered through an ECO: also 5% without ITC
• The GTA exemption under Entry 21A of Notification 12/2017-CTR, for transportation of goods to unregistered persons, will not apply where the goods are supplied or ordered through an ECO — closing the gap between the two routes

India exports over $350 billion of services a year. Three provisions in the IGST Act had been quietly taxing a slice of that.

Trap 1 — Your own foreign branch disqualified you

Section 2(6) of the IGST Act defines "export of services" through five conditions. Sub-clause (v) said the supplier and the recipient must not be establishments of a distinct person under Explanation 1 to Section 8. The effect: an Indian firm serving a foreign client through its own branch or office abroad failed the test. The work was done in India, the client was foreign, the foreign exchange came in — but it was not an "export", so it was taxed, and no refund followed.

This hits exactly the firms India wants to grow: analytics companies, design studios, engineering consultancies, law and accounting firms with overseas offices, and the Global Capability Centres that multinationals run from India.

Sub-clause (v) of Section 2(6) is being omitted. Services supplied to or through a firm's own foreign offices and branches can now qualify as exports, and the refunds follow.

Trap 2 — Work on a client's goods, done in India

Section 13(3)(a) of the IGST Act said that where goods are made physically available by the recipient to the supplier, the place of supply is where the services are performed — that is, in India. So testing a foreign client's samples, repairing their equipment, certifying their product, conducting research on their materials, or processing their goods was treated as a domestic supply and taxed, even though the customer was abroad and paid in foreign exchange.

This made India structurally more expensive than competing locations for contract manufacturing, testing, R&D services and repair hubs.

Section 13(3)(a) is being omitted. Place of supply will now fall under the default rule in Section 13(2) — the location of the recipient. Such work becomes an export of service even though the goods never leave the country.

Trap 3 — Delivery into an SEZ or FTWZ for an overseas buyer

An Indian manufacturer sells to an overseas buyer, but the buyer asks for delivery into an SEZ or Free Trade Warehousing Zone in India for warehousing or further processing before onward shipment. The goods have not left India, so the zero-rating position was uncertain and frequently disputed.

An explanation is being inserted in Section 16(1) of the IGST Act: where goods are supplied to an overseas buyer but delivered to that buyer in an SEZ or FTWZ, and payment is received in convertible foreign exchange (or in Indian rupees wherever permitted by the RBI), the supply is deemed to be a supply of goods to an SEZ/FTWZ — and therefore zero-rated.

Transfer of IPR

Schedule II of the CGST Act is to be amended so that transfer of title in Intellectual Property Rights, whether temporary or permanent, is uniformly treated as a supply of services. Until now permanent transfer was often argued to be a supply of goods and temporary transfer a supply of services, which changed the place of supply, the rate and the export treatment of the very same IP. For software, pharma licensing, media rights and brand transactions with cross-border counterparties, a single consistent answer is worth a great deal.

An important distinction, because headlines will blur it.

Goods — clarifications and corrections

Services — rates, exemptions and clarifications

For a kirana store or a neighbourhood salon, GST compliance costs more than the GST.

The Annual Return Quarterly Payment (ARQP) scheme

The Council has given in-principle approval to an optional scheme for taxpayers with aggregate turnover of ₹5 crore or less in the preceding financial year who are engaged exclusively in supplies to unregistered persons (B2C). Under it, such a taxpayer would file a return once a year and pay tax quarterly.

Note the two conditions carefully: turnover up to ₹5 crore and exclusively B2C. Make one B2B supply and you fall outside the scheme. This is not the composition scheme — it is a filing-frequency relief, and the tax is still paid quarterly at normal rates.

Status: a concept note approved in principle. The detailed framework and the amendments needed will come to the Council at its next meeting. Do not plan around it yet.

Late fee relief, available sooner

The dates matter more than the decisions, because acting early on an unnotified change is itself a risk.

The Council's press release states plainly: the recommendations are presented in simple language for the information of stakeholders, and "the same would be given effect through the relevant circulars / notifications / law amendments which alone shall have the force of law." Treat every item above as a direction of travel until you see the notification number.

The same meeting lands very differently depending on what you do.

Worth stating plainly, because an announcement of this size invites wrong assumptions.

• GST rates. 5%, 18% and 40% stand. No rationalisation exercise took place, and rate matters now move to a once-a-year meeting
• Section 16(2)(c). If your supplier does not pay the tax, you can still lose the credit. A committee is studying it; the law has not moved
• Return filing frequency. Monthly GSTR-1 and GSTR-3B continue for everyone. The ARQP scheme is an in-principle concept note for exclusively-B2C taxpayers under ₹5 crore, not yet a scheme
• Search, seizure, summons, inspection and audit. All intact. Only the power of arrest goes
• Interest and penalty on genuine defaults. Recovery, interest and a proportionate penalty continue to apply
• Petroleum products, electricity and alcohol remain outside GST. Not discussed at this meeting
• Nothing is law until notified. The amendments to the CGST and IGST Acts need Parliament and the State legislatures