GST Council on October 7 to Consider Dropping Arrest Powers and Unlocking Blocked Input Tax Credit

The news

New Delhi. The GST Council meets on Wednesday, October 7, to consider a “broad overhaul” of GST procedure, The Economic Times reports. These are proposals, not decisions; ET says Centre and State officials have discussed them “threadbare” for nine months. They include removing arrest powers under GST law, raising the prosecution threshold to ₹5 crore from ₹1 crore, and refunding tax paid on plant, machinery and input services over five years. Input tax credit (ITC) is tax paid on purchases, set off against tax collected on sales. Finance Minister Nirmala Sitharaman, in an article in The Indian Express and The Hindu, writes that gross collections were ₹12.46 lakh crore in April–September 2026, up 11.6%, and reported taxable supplies grew 25.8% between October 2025 and July 2026.

Static syllabus linkage

1. The GST Council can be blocked by the Centre alone but cannot decide without it. Article 279A, inserted by the 101st Amendment Act, 2016, makes the Union Finance Minister chair, with the Union Minister of State and each State’s finance minister as members. The Centre holds one-third of the weighted votes, States two-thirds, and a decision needs three-fourths. In Union of India v. Mohit Minerals (2022) the Supreme Court held its recommendations persuasive, not binding.
2. Section 16 of the CGST Act allows input tax credit and Section 17(5) blocks parts of it. Under the CGST Act, 2017, credit is allowed on business inputs, among other conditions only if the supplier has paid the tax. Section 17(5) lists “blocked credits” such as outdoor catering, health services and vehicles seating up to 13 persons, with exceptions.

Why UPSC loves this

1. GS3 resource mobilisation and GS2 federal structure meet in GST. The GS3 line is “Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment”.

Analysis

1. Letting an honest buyer keep credit moves fraud’s cost to the one best placed to bear it. Today, if a supplier up the chain never deposits tax, the buyer loses credit and fights a notice, which ET calls a leading cause of litigation. Under the proposal the buyer keeps it and the department chases the defaulter, as invoices are now matched one by one. The counter-view is that “bona fide” is a judgement, so the dispute may move to the buyer’s good faith.
2. Releasing stuck credit is a capital stimulus with no new subsidy. Many 5% goods, including food, pharma, textiles and electric vehicles, bear a higher tax on inputs than on output, an inverted duty structure, so credit piles up unused. EY’s Bipin Sapra calls the fix a “capex stimulus comparable to a PLI scheme without creating a new subsidy”. ET prints no revenue cost.
3. Lens — Centre and States: a procedural reform is real only when every legislature mirrors it. Each State has an SGST Act that copies the central law, so dropping arrest powers takes effect only when Parliament and every State legislature amend. States also share the cost of faster refunds, though Ms Sitharaman says their SGST receipts rose about 16% in April–September. A thoughtful officer would watch State amendments, not the communique.

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