57th GST Council Meeting: Key Recommendations and What They Mean

The 56th GST Council Meeting focused on rate rationalization, whereas the 57th GST Council Meeting focused on process reforms. This meeting was chaired by Union Finance Minister Smt. Nirmala Sitharaman and attended by Chief Ministers, Deputy Chief Ministers and Finance Ministers of the States and UTs, along with the Revenue Secretary and CBIC. Its recommendations cover registration, returns, refunds, adjudication, exports, e-way bills and a set of rate clarifications.

The recommendations take effect only once the relevant law amendments, notifications and circulars are issued. This article summarizes what was recommended and what it means in practice.

Decriminalization and lighter litigation.

The headline reform is the complete withdrawal of arrest powers by omitting section 69 of the CGST Act. Prosecution survives, but only for serious fraud, with deterrence retained for fake-invoice and credit fraud.

Area	Current position	Recommended change
Arrest (s. 69)	Power to arrest exists	Section 69 omitted
Prosecution threshold (s. 132)	₹1 crore	₹5 crore
Offences under s. 132(1)	Wide list	Clause (i) omitted; "evades tax" dropped from (e); "or in any other manner deals with" dropped from (h); (c) limited to fraudulent ITC without goods/services or without invoice
Punishment under s. 132	Existing scale	Rationalized
General penalty (s. 125)	Up to ₹25,000	Up to ₹10,000
Minimum SCN threshold (ss. 73, 74, 74A)	None	No notice where tax is below ₹10,000 (CGST+SGST+IGST+Cess); applies to pending notices and appeals too
Reduced penalty, non-fraud	—	5% if tax and interest paid within 30 days (s. 73) or 60 days (s. 74A) of the order
Minimum penalty, non-fraud	₹10,000	Removed
Pre-deposit on penalty-only orders (ss. 107(6), 112(8))	No cap	Capped at ₹40 crore (₹20 crore CGST + ₹20 crore SGST/UTGST)

 Two further changes matter for practitioners handling notices. A circular will lay down common standards for demand notices, adjudication and appeal orders, including timely issue, invoking fraud or suppression only on merits, and personal hearings. Rule 86A will be amended so a taxpayer can object to blocking of the electronic credit ledger and be heard before a decision.

Where tax, interest and penalty are paid voluntarily within the time limit, the penalty will be deemed a “charge”. A validation clause is also proposed for notices that courts have struck down for covering multiple financial years, so taxpayers relying on that ground should expect it to weaken.

Input tax credit and refunds.

Refunds move to system-based sanction in two phases, and accumulated credit on capital goods and input services becomes refundable for the first time.

Automated refunds (amendments to s. 54 and the Rules). In Phase 1, excess cash-ledger balances will be refunded in full by the system without an officer. The acknowledgement or deficiency-memo window drops from 15 to 10 days, after which acknowledgement is deemed. For zero-rated supplies and inverted duty structure, 90% will be provisionally sanctioned automatically on a risk assessment. In Phase 2, acknowledgement becomes automatic and zero-rated claims are sanctioned in full after adjusting pending dues.

Supporting changes. RFD-01 will capture details in a system-readable format, so scanned documents are no longer needed for zero-rated and inverted-duty claims. The rule 89(4)(C) cap of 1.5 times the value of like domestic goods is removed. The ₹1,000 minimum in s. 54(14) will apply to the combined CGST, SGST/UTGST and IGST amount. Section 115 will be made a standalone provision on interest for refund of appeal pre-deposits, with a clarifying circular.

Refund of accumulated ITC.

•       Input services, for inverted duty structure refunds: on ITC availed on or after 15 November 2026.

•       Capital goods, for zero-rated and inverted duty refunds: spread over 60 months, on ITC availed on or after 1 April 2027.

Blocked credit under s. 17(5). Restrictions will be removed on, among others, outdoor catering, health and life insurance, telecommunication towers, pipelines laid outside factory premises, free samples, and goods destroyed or written off on expiry of shelf life as required by law.

Same line of business credit. Limited ITC will be allowed for restaurant and outdoor catering, hotel accommodation up to ₹7,500 per unit per day, and gym or fitness services, mirroring the existing treatment of passenger transport, tour operators and motor-vehicle renting.

Circulars will also address ISD distribution, ITC for banks and NBFCs that opt for s. 17(4), demonstration vehicles, and the omission of rule 96(10) from 23 October 2017 in line with the Supreme Court decision.

Registration, returns and compliance.

Registration, amendment and cancellation become largely automatic, and a new return-correction framework aims to end 3B mismatch notices from the April 2027 return.

Registration. Automatic registration under rule 14A already covers applicants passing on ITC up to ₹2.5 lakh a month. For other cases, a circular with FAQs will list required documents, REG-01 will get drop-down selections for documents, and the portal interface will be improved to cut queries and rejections.

Amendments (rule 19). All amendments except Principal Place of Business will be accepted automatically. For rule 14A registrants, even PPoB changes will be automatic.

Cancellation. In Phase 1, REG-16 applications are auto-accepted once returns are filed and dues paid, where the taxpayer never passed on ITC above ₹2.5 lakh in a month, or filed GSTR-10 in time. In Phase 2, all such applications are auto-accepted and GSTR-10 details move into REG-16 itself. Some rule 21 grounds for suo-moto cancellation will be dropped, and new rule 23A brings system-based cancellation and revocation for non-filing of returns or missing bank details.

Small sellers on e-commerce (new rule 14B). Suppliers of goods through ECOs in States where they have no physical presence, passing on ITC up to ₹2.5 lakh a month (excluding stock transfers), can declare the ECO's warehouse as their PPoB. Registration will be granted automatically, subject to conditions.

Returns: alternate correction mechanism (from the April 2027 return).

•       GSTR-1/1A/IFF enhanced to reconcile better with GSTR-3B.

•       New rule 86D: Electronic Statement of tax paid on reverse charge and ITC claimed.

•       New rule 86C: Electronic Credit Reversal and Reclaim Statement.

•       Rule 61(1A) and 61(1B): mechanisms to align 3B liability with GSTR-1 and 3B ITC with GSTR-2B.

•       Rule 60(6A): IMS accept, reject or pending actions for GSTR-2B, with a limit on how long credit notes can stay pending.

•       DRC-03 to capture the underlying invoice for payments.

The revised mechanism will go to time-bound public consultation first.

Other compliance changes.

•       Late fee waived for taxpayers with turnover up to ₹5 crore if a s. 39(1) return is filed by the end of the month in which it was due.

•       Optional Annual Return Quarterly Payment (ARQP) scheme approved in principle for taxpayers up to ₹5 crore turnover making only B2C supplies.

•       E-invoicing extended to RCM inward supplies from unregistered persons and to import of services, for turnover of ₹5 crore and above.

•       Time limits in ss. 37 and 39 aligned with the s. 16(4) ITC deadline.

•       Section 9(5) clarified so ECO liability for notified services applies whatever the business model.

Movement of goods and e-way bills.

Interception of vehicles will need specific intelligence and Joint Commissioner authorization, and transit States lose the power to intercept, through amendments to ss. 68, 129 and 130.

•       A conveyance may be intercepted only on specific intelligence, with authorization from an officer not below Joint Commissioner.

•       Inspection, detention or seizure is allowed only where the supplier or recipient is located or registered in the State making the interception. Transit States cannot intercept.

•       Where no e-way bill exists, or the vehicle carries no document showing origin or destination, goods can be inspected, detained or seized regardless of jurisdiction.

•       Confiscation under s. 130 will not apply to goods or conveyances in transit.

Separately, Schedule II will be amended so that any transfer of title in intellectual property rights, temporary or permanent, is treated uniformly as a supply of services.

Exports and rate clarifications.

Services supplied to an Indian supplier's own foreign branch will qualify as exports, ending a long-running source of refund disputes.

Exports and zero rating.

•       Section 2(6)(v) of the IGST Act omitted: supplier and recipient being establishments of a distinct person no longer disqualifies an export of services.

•       Section 13(3)(a) of the IGST Act omitted: where goods are made physically available by the recipient, place of supply falls back to the recipient's location under s. 13(2).

•       Explanation to s. 16(1) of the IGST Act: goods sold to an overseas buyer but delivered in an SEZ/FTWZ, with payment in foreign exchange or permitted INR, are deemed supplies to the SEZ/FTWZ.

•       A circular will clarify receipt of export proceeds in foreign exchange or permitted Indian rupees.

 GOODS.

Item	Recommendation
Sublimation paper	Heading 4809; past cases regularized "as is where is"
Toys	Rate entries cover all of heading 9503, not just tricycles, scooters and pedal cars
Seaweed-extract bio-stimulants	Heading 3101 as fertilizers if registered under FCO Schedule VI; past regularized
Second-hand vehicles (margin scheme)	ITC allowed on inputs and services other than the vehicles themselves
Plastic, e-waste, tyre scrap, used cooking oil	RCM on supplies from unregistered persons; 2% TDS on B2B supplies
Psyllium (isabgol) seeds	Nil, whether fresh, chilled, frozen or dried
Re-treaded tractor tyres	Aligned with new tractor tyres
CSD and unit-run canteens	Compensation Cess not levied for specified past periods exempted

 SERVICES.

Item	Recommendation
EV passenger transport and rental with operator	Option of 5% with restricted ITC, where charging cost is in the price
Delivery through ECOs (not courier or postal)	Under s. 9(5) where provider is unregistered; 5% without ITC
Delivery of goods ordered through ECOs	5% without ITC; GTA exemption for unregistered recipients withdrawn
Motor vehicle leasing	Clarity on recovery of registration, road tax, insurance, FASTag
Helicopter seat-sharing, NE States, Sikkim, Bagdogra	Exempt
Storage of seeds for sowing; coffee curing	Exempt
Seamen's Provident Fund Organization	Exempt
R&D (Entry 44A)	Self-certification by head of institution
Foreign shipping lines' Indian establishments	Import from related persons without consideration exempt; past regularized
TOT highway projects	Toll-right grant exempt; special procedure for O&M services
Bank funds transfer pricing	Notional interest treated as "interest"

What taxpayers and practitioners should do now.

Nothing changes until the law and notifications are issued, but three dates are already fixed: 15 November 2026, 1 April 2027 and the April 2027 return.

Date	What starts
15 November 2026	ITC on input services availed from this date becomes refundable under inverted duty structure
1 April 2027	ITC on capital goods availed from this date becomes refundable over 60 months
April 2027 return	Alternate mechanism for correcting liability and ITC in GSTR-3B