In 72,393 GST evasion cases between 2021-22 and 2024-25, the government detected Rs 6.23 lakh crore fraud but recovered only Rs 1.10 lakh crore and arrested 887 persons by central formations. The recovery rate - under 18% - tells the story: arrest as a tool did not translate into revenue.
Since GST rollout in July 2017, the regime under Section 69 of CGST Act allowed officers to arrest on "reasons to believe" of fake invoices, fraudulent ITC availment, bills without supply, or collecting tax but not depositing it. Industry, especially services, banking and insurance, called it harassment and a bargaining tool to force penalty payment under Section 50 to avoid legal battles. Several high-ranking functionaries being arrested recently, termed overreach by industry leaders, made the change urgent.
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The government now argues this is about ease of doing business. The GST Council, at its upcoming 57th meeting, is expected to bring an amendment in the Winter Session to remove arrest provisions from GST laws. Intentional fraud will still be prosecuted, but through the criminal code, Bharatiya Nyaya Sanhita, not by tax
This is not a new concern. At the fifth GST Council in December 2016, Maharashtra's Additional Chief Secretary had warned that arrest and confiscation were not in tune with ease of doing business. West Bengal noted that under VAT there was no arrest power - only FIR with police.
The shift aligns with broader decriminalisation. In September, CBDT removed arrest and detention from tax recovery rules retrospectively from April 1, 2026, and barred arrests for tax default. For GST, CBIC says inbuilt safeguards - Commissioner authorisation, Rs 2 crore threshold, severe offences only - existed, but perception of fear remained.
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For India's 1.4 crore GST registrants, largely MSMEs, this is relief. Deterrence should come from data analytics and ITC matching, not midnight knocks. If Parliament clears it, GST will finally behave like a tax law, not a police law.
Tags: #GST #TaxReform #EaseOfDoingBusiness #CBIC #MSME #InputTaxCredit #GSTCouncil #BharatiyaNyayaSanhit #TaxTerrorism #IndianEconomy