The GST Council’s decision to decriminalise and rationalise enforcement powers reflects trust-based economic governance, said the CII. On October 8, the Council recommended raising the prosecution threshold to ₹5 crore and removing arrest powers. Chandrajit Banerjee said, “Effective tax administration need not depend on the threat of criminal sanctions.”
As many of the reform measures under GST have come into effect from Sunday, the Confederation of Indian Industries (CII) has said that GST Council’s decision for decriminalisation and rationalisation of enforcement powers among the most significant institutional reforms in India’s transition towards trust-based economic governance.
In its meeting on October 8, GST Council recommended withdrawal of arrest powers of tax official, rationalisation of the e-way bill-related interception & verification procedures, no show cause notice for tax dues below ₹10,000, a fivefold increase in the monetary threshold for prosecution from ₹1 crore to ₹5 crore, narrowing of specified offences under Section 132 of CGST Act, and rationalisation of imprisonment provisions, including greater judicial discretion in sentencing.
Though some of the measures recommended need amendment in law, still, the Central Board of Indirect Taxes & Custom (CBIC) has instructed that as an interim measure of trade facilitation, it has been decided by the Central Government that till these amendments in the Act are brought into effect, reforms will be implemented by the field formations.
Meanwhile, according to Chandrajit Banerjee, Director General of CII, the GST Council’s decisions deserve special recognition as a landmark institutional reform. “Reaching agreement on fundamental changes is a substantial achievement of cooperative federalism. It demonstrates the willingness of the Centre and States to reconsider established regulatory practices in favour of greater trust in legitimate enterprise,” he said.
In an assessment of the decisions taken on 8 October, the industry chamber said their importance extends well beyond taxation, demonstrating how the Centre and States can work together to undertake difficult reforms that improve the relationship between Government and enterprise. The decisions mark a fundamental shift towards more proportionate enforcement, greater predictability and confidence in legitimate business activity, while retaining strong safeguards against deliberate fraud and evasion.
Banerjee said that recommendations related to the removal of arrest powers, increase in the monetary threshold for prosecution and decriminalization represent a fundamental recalibration of GST enforcement while retaining criminal prosecution for serious cases of deliberate fraud and evasion. “The importance of this reform is not simply that certain enforcement powers are being withdrawn. It is that the GST Council has recognised that effective tax administration need not depend on the threat of criminal sanctions. This is one of the most consequential steps towards trust-based governance in recent years, particularly given the reach of GST across virtually every sector of the economy,” he said.
The chamber noted that developments since the Council meeting have reinforced this direction. CBIC’s circulars issued on 26 October address practical concerns relating to registration, notices and adjudication, including the need to substantiate allegations of fraud with evidence, provide greater clarity in tax notices and ensure reasoned adjudication. These instructions address longstanding concerns of industry, where uncertainty over interpretation, documentation requirements and allegations of wrongdoing can impose substantial costs even before disputes are resolved.
It emphasized that the GST Council has demonstrated that even reforms involving established enforcement powers and sensitive administrative responsibilities can be undertaken through consultation and consensus. “India’s next phase of economic transformation will depend increasingly on cooperative federalism. Many of the remaining barriers to investment, manufacturing and enterprise growth lie at the intersection of Central, State and local regulations” Banerjee said while urging industry to reciprocate through responsible conduct and stronger voluntary compliance.