GST enforcement may shift from 'arrest' to 'detect, recover and prosecute serious frauds'

New Delhi: The Goods and Services Tax (GST) enforcement framework might soon see significant changes with tax officers likely to lose the power to arrest evaders, as part of decriminalisation of the GST law.

While the 56th GST Council meeting held in September 2025 saw major steps on rationalisation of tax rates, the 57th meeting, to be held on October 7, is likely to take up policy reforms that include change in enforcement provision.

If the GST Council, comprising Union and state finance ministers, approves the proposal, the Goods and Services Tax enforcement could shift to judicial oversight from departmental arrest, while reserving criminal prosecution for serious and deliberate tax fraud.


Here is a quick look into how the law stands as of date and what the proposed reforms in enforcement under GST 2.0 entail.

Current GST Law and Enforcement

Under the current provisions, Commissioner-level officers are empowered to authorise any Central or State Tax Officer to arrest such a person who has committed specified offences under the law.

The power to arrest is principally limited to serious offences, including issuing fake invoices, availing or utilising fraudulent Input Tax Credit (ITC), and collecting tax but failing to deposit it with the government within the prescribed period.

The law also distinguishes between bailable and non-bailable offences. Offences involving the specified categories where the amount exceeds Rs 5 crore are classified as cognizable and non-bailable. Offences below that threshold, subject to the statutory framework, are generally non-cognizable and bailable.

Section 69 of GST talks about the power to a GST officer to make an arrest - "Where the Commissioner has reasons to believe that a person has committed any offence ... he may, by order, authorise any officer of central tax to arrest such person". Once arrested, the person is to be produced before a magistrate within 24 hours.

Current Arrest Mechanism

After approval from a Commissioner-level officer, GST officers can seek assistance from local police and certain other government authorities for implementing the provisions of the GST law. GST arrests are carried out by authorised Central or State Tax Officers and not by the local police.

The role of police is primarily supportive. GST officers cannot retain an arrested person in their custody indefinitely. The arrested person has to be presented before a magistrate within 24 hours.

Once the person is produced before the magistrate, the decision on bail or further remand rests with the court. The magistrate may grant bail or remand the person to judicial custody in accordance with the applicable criminal procedure law, currently governed by the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS).

Proposed Changes

The proposed reforms, if approved, could fundamentally change the framework in which GST officers operate to make an arrest. The key proposal is to remove the power of GST officers to directly arrest taxpayers and instead require judicial authorisation for an arrest.

In other words, the enforcement model could move from departmental arrest powers towards greater judicial oversight.

The proposed changes provide for compounding of offences and GST officers will focus on recovering tax dues, along with interest and penalty. Serious cases involving deliberate tax evasion or fraud could continue to be prosecuted through the criminal justice system.

What May Change For Businesses, Tax Officers

The proposal does not mean that GST officers would not chase tax demands or that frauds would become consequence-free. Taxpayers would continue to face proceedings for recovery of tax, interest and applicable penalties.

For businesses, this reform would be a big relief as they would not be subject to "harassment" of sudden arrests by tax officers. Instead arrests would be made only after due hearing in a court of law.

For GST officers, the proposed changes would mean that they would focus on getting taxes from evaders and let law enforcement agencies deal with arrests in cases of serious offences. They would continue to have powers of search and seizure as well to summon persons to give evidence and produce documents.

Regular GST disputes are likely to be addressed through adjudication, recovery, interest and penalties, while the criminal law would be focused on cases involving genuine and substantial fraud.

Data on GST Arrests

One of the high-profile arrests in recent times was in the case of Fino Payments Bank. In February, GST authorities arrested its then MD and CEO Rishi Gupta on suspicion of using shell companies and payment aggregators to funnel the illicit funds being generated by online money gaming.

The Central GST formations have detected Input tax credit (ITC) frauds worth Rs 74,782 crore in 2025-26 and arrested 358 persons. Another 60 people were arrested for fake GST registrations obtained through misuse of forged and Aadhar cards.

In 2024-25, 178 persons were arrested by CGST formations for ITC fraud, totalling Rs 58,773 crore. For fake registration, 50 persons were arrested.

In 2023-24, CGST formations detected ITC fraud of Rs 36,373 crore and made 182 arrests, while 67 persons were arrested for fake registration.