Why In News?

At the 57th Meeting of the Goods and Services Tax (GST) Council, chaired by the Union Finance Minister, the Council recommended decriminalization measures, capping general penalties, and introducing faceless assessments to curb tax inspector harassment.

What Is The GST Council?

The GST Council is a joint constitutional forum created under Article 279A via the 101st Constitutional Amendment Act, 2016. The President of India was mandated to constitute the Council within 60 days of the article's commencement.

Composition: It is chaired by the Union Finance Minister and includes the Union Minister of State in charge of Revenue/Finance alongside the State Finance or Taxation Ministers nominated by each State Government.

Quorum Requirements: Under Article 279A(7), at least 50% (one-half) of the total members must be present to constitute a valid meeting quorum.

Weighted Voting Mechanism: Decisions require a weighted majority of at least 3/4th (75%) of members present and voting. 

  • The Central Government holds 1/3rd (33.33%) voting weightage, while all State Governments collectively hold 2/3rd (66.67%) weightage.

Core Functions: Under Article 279A(4), the Council recommends tax rates, exemptions, threshold limits, model GST laws, and place of supply principles. 

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  • Under Article 279A(5), it determines the effective date for levying GST on petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel (ATF).

Judicial Standing: In Union of India vs Mohit Minerals Pvt. Ltd. (2022), the Supreme Court ruled that recommendations of the GST Council possess persuasive value rather than binding mandates on Parliament and State Legislatures, maintaining simultaneous legislative powers under Article 246A.

What Are The Recommendations Of The 57th GST Council Meeting?

Decriminalisation & Enforcement Overhaul:

  • Recommended the complete omission of statutory arrest powers under Section 69 of the Central Goods and Services Tax (CGST) Act, 2017.

  • Raised the statutory criminal prosecution threshold under Section 132 from ₹1 crore to ₹5 crore.

  • Removed mandatory minimum six-month imprisonment requirements under Section 132(3), leaving sentencing to judicial discretion.

De-Minimis Limit & Litigation Relief:

  • Established a statutory floor of ₹10,000 for issuing show-cause notices under Section 73, Section 74, and Section 74A; existing pending notices below ₹10,000 will be withdrawn.

  • Reduced the maximum general penalty under Section 125 from ₹25,000 to ₹10,000.

  • Allowed a reduced 5% penalty for eligible non-fraud cases when tax and interest are paid within prescribed timelines.

Refund & Inverted Duty Reforms:

  • Reduced acknowledgment and deficiency memo issuance timelines from 15 days to 10 days.

  • Mandated automated provisional sanction of 90% of refund claims arising from zero-rated supplies and inverted duty structures without officer intervention.

  • Made input services eligible for refunds under the inverted duty structure starting 1 November 2026.

Compliance & Administrative Facilitation:

  • Automated registration routes currently issue approvals to 61% of applicants within three working days.

  • Restricted inter-State goods interception strictly to officers of the supplier or destination State, requiring specific intelligence and authorization from a Joint Commissioner-level officer.

  • Proposed a faceless Central GST assessment framework modeled on income tax, with public consultation planned before Budget 2027 and implementation targeted for 2027–28.

  • Institutionalized annual GST rate rationalization reviews rather than ad-hoc rate adjustments.

  • Approved an optional Annual Return Quarterly Payment (ARQP) scheme for small taxpayers with turnover up to ₹5 crore.

What Are The Challenges In The GST Regime?

Asymmetric Central Veto: The 33.33% voting share allocated to the Central Government under Article 279A(9) operates as an absolute unilateral veto over any resolution requiring a 75% majority, creating structural friction for State-led initiatives.

Fiscal Gap Post-Compensation Guarantee: The expiry of the five-year compensation period under the Goods and Services Tax (Compensation to States) Act, 2017 reduced State revenue safety nets, increasing fiscal dependence on Union transfers.

Dispute Resolution Deficit & Judicial Backlogs: Absence of a operationalized inter-governmental dispute mechanism under Article 279A(11) and delays in functionalizing the Goods and Services Tax Appellate Tribunal (GSTAT) under Section 109 led to severe litigation backlogs in High Courts.

Divergent State Rules & Persuasive Enforcement: Because Council recommendations carry persuasive force (Mohit Minerals case), individual State Legislatures retain power to enact conflicting rules, risking the harmonization of the national market.

Tax Base Exclusions: Leaving high-revenue sectors like petroleum products (petrol, diesel, crude, ATF, natural gas) and alcoholic liquor for human consumption outside GST creates tax cascading and breaks the Input Tax Credit (ITC) chain.

Way Forward

Operationalise GSTAT & Dispute Tribunals: Expedite the national rollout of Goods and Services Tax Appellate Tribunal (GSTAT) benches under Section 109 of the CGST Act, 2017 and activate the dispute resolution mechanism under Article 279A(11) to resolve Centre-State tax conflicts.

Phased Tax Base Expansion: Formulate a time-bound roadmap to bring petroleum products and alcohol into the GST fold under Article 279A(5) to eliminate cascading effects and complete credit flow.

Professionalise the Council Secretariat: Establish an independent, expert-staffed technical secretariat under the GST Council to provide objective, data-driven revenue impact assessments for all States.

Technology Automation & Faceless Audits: Expand risk-based automated engines via the Goods and Services Tax Network (GSTN) for refunds and implement faceless Central GST assessments by 2027–28 to remove departmental discretion.

Centralised Advance Ruling Mechanism: Establish a single National Authority for Advance Rulings to reconcile conflicting State-level rulings and provide uniform tax interpretation nationwide.

Conclusion

Transforming GST from a revenue-collection framework into a trust-based tax administration requires balancing administrative decriminalisation with institutional dispute resolution to sustain cooperative fiscal federalism.

Source: THEHINDU

PRACTICE QUESTION

Q. With reference to the recommendations of the 57th GST Council Meeting, consider the following statements:

1. The threshold for initiating criminal prosecution under the GST regime has been increased from ₹1 crore to ₹5 crore.

2. Goods transported between states can now be intercepted and seized by enforcement officers of any transit state without prior authorization.

3. Input tax credit has been permitted for business expenditures incurred on mandatory employee health and life insurance.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (c)

Explanation

Statement 1 is correct: The GST Council recommended raising the monetary threshold for initiating criminal prosecution under Section 132 of the CGST Act from ₹1 crore to ₹5 crore, aiming to decriminalize minor offences and reduce litigation involving smaller amounts.

Statement 2 is incorrect: To prevent arbitrary harassment and ensure seamless movement of goods across states, the Council decided that goods transported inter-state can be inspected, detained, or seized only by officers of the supplier State or the destination State. Furthermore, interception in transit requires specific intelligence and prior authorization from an officer of at least the rank of Joint Commissioner.

Statement 3 is correct: The Council recommended relaxing restrictions under Section 17(5) of the CGST Act, expressly allowing Input Tax Credit (ITC) on employer-incurred expenditures for employee life and health insurance where provided pursuant to statutory mandates or legitimate business operations.