57th GST Council Meeting Highlights: Ease for Refunds, Arrests Off the Table

Last year, the 56th meeting was about what we pay – rate rationalisation. On 8 October 2026, the 57th GST Council meeting in New Delhi turned to how we deal with the tax department. The answer is a sweeping process reform package: refunds sanctioned by the system, wider input tax credit (ITC), removal of arrest powers, a higher prosecution threshold and lighter penalties.

For exporters and manufacturers with an inverted duty structure – including the export-oriented IT, pharma and manufacturing units across Hyderabad and Telangana – refunds are the headline. Telangana was represented at the meeting by its Deputy Chief Minister.

Important: these are recommendations. They will take effect only through amendments to the CGST/IGST Acts and Rules, notifications and circulars, which are awaited.

1. How will GST refunds work after the 57th GST Council meeting?

The Council has recommended amending section 54 of the CGST Act, 2017 and the CGST Rules for system-based processing and sanction of three categories of refund: excess balance in the electronic cash ledger, zero-rated supplies, and inverted duty structure (IDS). This will be rolled out in two phases.

Refund type	Phase 1	Phase 2
Excess cash ledger balance	Full refund sanctioned automatically, without officer intervention	—
Acknowledgement / deficiency memo	Time limit reduced from 15 to 10 days; deemed acknowledgement if not issued within 10 days	Automated acknowledgement on system verification
Zero-rated supplies	90% provisional refund sanctioned by the system, based on risk evaluation	Full refund sanctioned by the system after adjusting pending dues, based on risk evaluation
Inverted duty structure	90% provisional refund sanctioned by the system, based on risk evaluation	Not specified in the press release

Other refund fixes recommended

• FORM GST RFD-01 will capture details in a system-readable format. Scanned documents will not be required for zero-rated and IDS claims.
• Rule 89(4)(C): the cap limiting turnover of zero-rated goods to 1.5 times the value of like goods supplied domestically is to be removed.
• Section 54(14): an Explanation will clarify that the ₹1,000 minimum applies to the total refund – CGST, SGST/UTGST and IGST taken together.
• Section 115 (interest on refund of pre-deposit): to become a standalone provision on the rate of interest, with a circular to settle the issues on rate.

2. Refund of ITC on input services and capital goods

This is arguably the most important refund change. Today, inverted duty refunds under clause (ii) of the proviso to section 54(3), read with rule 89(5), cover only ITC on inputs. ITC on input services and capital goods remains locked. The Supreme Court upheld this restriction in Union of India v. VKC Footsteps India Pvt. Ltd. (2021), while noting that the Council could reconsider the formula. The 57th GST Council meeting has now done so.

ITC on	Refund type	Eligible ITC	Manner
Input services	Inverted duty structure	ITC availed on or after 1 November 2026	Part of accumulated ITC refund
Capital goods	Zero-rated supplies and inverted duty structure	ITC availed on or after 1 April 2027	Spread over 60 months

Points to note:

1. The relief is prospective. ITC on input services availed before 1 November 2026, and on capital goods availed before 1 April 2027, is not covered by the recommendation.
2. Because this needs an amendment to section 54(3) of the CGST Act, the way the 1 November 2026 date will be given legal effect is still to be seen – position requires verification.
3. The refund formula in rule 89(4) and 89(5) will need to be revised. The 60-month spread suggests a staggered, per-period refund of capital goods ITC. The exact method will come with the amended Rules.

3. Four changes for exporters that unlock refunds

Provision	Recommendation	Who benefits
Section 2(6)(v), IGST Act	Omit the condition that supplier and recipient are not establishments of a distinct person (Explanation 1 to section 8)	Indian service providers supplying to or through their own foreign offices or branches
Section 13(3)(a), IGST Act	Omit clause (a); place of supply moves to the default rule in section 13(2) – the recipient’s location	Service providers working on goods made physically available by foreign recipients
Section 16(1), IGST Act	Explanation: supply to an overseas buyer delivered in an SEZ/FTWZ, paid in convertible foreign exchange (or INR where RBI permits), is deemed a supply to the SEZ/FTWZ	Manufacturers delivering to overseas buyers inside an SEZ/FTWZ
Export proceeds	Circular to clarify issues on receipt of payment in foreign exchange or INR, as permissible	Exporters of goods and services

For Hyderabad’s services economy around HITEC City and the Financial District, the section 2(6)(v) change deserves attention. Indian subsidiaries of foreign companies were already clarified as not being establishments of a distinct person (Circular No. 161/17/2021-GST). The amendment mainly helps Indian entities that render services to their own branches or offices abroad. Until now, such supplies could not qualify as exports, so no refund was available.

4. Arrest, prosecution and penalties: a trust-based shift

Area	Present	Recommended
Arrest – section 69	Power to arrest exists	Section 69 to be omitted – complete withdrawal
Prosecution threshold	₹1 crore	₹5 crore
Section 132(1)	Wide list of offences	Clause (i) omitted; “evades tax” deleted from clause (e); “or in any other manner deals with” deleted from clause (h); clause (c) limited to fraudulent ITC without receipt of goods/services or without invoice; punishments rationalised
Show cause notice – sections 73/74/74A	No minimum amount	No notice if tax (CGST+SGST+IGST+Cess) is below ₹10,000; pending notices and appeals below ₹10,000 to be decided as if the threshold applied
Penalty in non-fraud cases	Minimum penalty ₹10,000	Minimum penalty removed; 5% penalty if tax and interest are paid within 30 days (s.73) or 60 days (s.74A) of the order
Voluntary payment	—	Penalty deemed a “charge” where tax, interest and penalty are voluntarily paid within the specified time
General penalty – section 125	Up to ₹25,000	Up to ₹10,000
Pre-deposit – penalty-only orders	No separate cap for penalty-only orders	Capped at ₹40 crore (₹20 crore CGST + ₹20 crore SGST/UTGST) for appeals before the Appellate Authority (s.107(6)) and the Tribunal (s.112(8))
Blocking of credit – rule 86A	No specific objection mechanism	Taxpayer may object and get a personal hearing before the officer decides

A circular will also lay down guidelines for officers on the quality and timeliness of notices and orders, invoking fraud or suppression only on the merits of each case, and following natural justice, including personal hearings.

5. E-way bill: interception only on intelligence

Amendments to sections 68, 129 and 130 of the CGST Act are recommended:

• A conveyance can be intercepted only on specific intelligence and with authorisation of an officer not below the rank of Joint Commissioner.
• Inspection, detention or seizure only where the supplier or recipient is located or registered in the intercepting State – no interception in transit States.
• Where no e-way bill is generated, or no document showing origin or destination is carried, action can be taken regardless of jurisdiction.
• Confiscation under section 130 will not apply to goods or conveyances in transit.

6. Registration and returns: less officer interface

Area	Recommendation
New registration	Comprehensive circular with document list and FAQs; drop-down document selection in FORM GST REG-01; better portal guidance
Amendment (rule 19)	Automatic acceptance of all amendments except Principal Place of Business (PPoB); for rule 14A registrants, PPoB changes are also automatic
Cancellation on application (REG-16)	Phase 1: automatic once returns are filed and dues paid, if ITC passed on never exceeded ₹2.5 lakh in a month, or final return (GSTR-10) is filed in time. Phase 2: all applications automatic; GSTR-10 details within REG-16
Suo motu cancellation	Certain grounds in rule 21 omitted; system-based cancellation and revocation for non-filing of returns or bank details (rules 21A, 22, new rule 23A)
E-commerce sellers (new rule 14B)	Small sellers supplying through e-commerce operators can register in States without physical presence by declaring the operator’s warehouse as PPoB, where ITC passed on is up to ₹2.5 lakh per month (excluding stock transfers)
Returns – from April 2027 return	GSTR-1/1A/IFF enhancements; rule 61(1A) and 61(1B) to align GSTR-3B with GSTR-1 and GSTR-2B; IMS rule 60(6A) (accept/reject/pending); new rule 86C (Credit Reversal and Reclaim Statement) and rule 86D (RCM statement); DRC-03 to capture invoice details. To be placed for public consultation
Late fee – section 39(1)	Waived for taxpayers with turnover up to ₹5 crore in the preceding FY, if the return is filed by the end of the month in which it was due
ARQP scheme	In-principle approval of an optional Annual Return Quarterly Payment scheme for turnover up to ₹5 crore making only B2C supplies
E-invoicing	Extended to RCM supplies received from unregistered persons and to import of services, for turnover of ₹5 crore and above

Other items: sections 16, 37 and 39 to be aligned with the ITC time limit in section 16(4); clarity on e-commerce operator liability under section 9(5); and changes to align the GST Appellate Tribunal with the Tribunals Reforms Act, 2026.

7. Input tax credit unblocked

Section 17(5) is to be amended to remove blocks on ITC for, among others:

• Outdoor catering
• Health and life insurance
• Telecommunication towers
• Pipelines laid outside factory premises
• Free samples
• Goods destroyed or written off on expiry of shelf life as required by law

Separately, limited ITC in the same line of business will be allowed for restaurant/outdoor catering, hotel accommodation up to ₹7,500 per unit per day, and gym/fitness services. Circulars are also recommended on the ISD mechanism, ITC for banks and NBFCs opting for section 17(4), payment of pre-deposits, ITC on demonstration vehicles, and the omission of rule 96(10) with effect from 23.10.2017, in line with the Supreme Court’s decision.

8. Rate clarifications – goods and services

Item	Recommendation
Sublimation paper	Classified under heading 4809; past cases regularised “as is where is”
Toys	Rate entries cover all toys under heading 9503 (dolls, puzzles, etc.), not only tricycles, scooters and pedal cars
Sea-weed extract bio-stimulants	Classified under heading 3101 as fertilisers (if registered under Schedule VI, FCO 1985); past cases regularised
Second-hand vehicles (margin scheme)	ITC allowed on inputs and input services other than the vehicles procured
Plastic, e-waste, tyre scrap, used cooking oil	RCM on supply by unregistered to registered persons; 2% TDS on B2B supplies
Psyllium seeds (Isabgol)	NIL rate, whether fresh, chilled, frozen or dried
Re-treaded tractor tyres	Aligned with the rate on new tractor tyres
EV passenger transport / rental with operator	Option of 5% with restricted ITC, where battery charging cost is included
Delivery services through e-commerce operators	5% without ITC; GTA exemption (Entry 21A) excluded for goods ordered through an ECO
Exemptions	Helicopter seat-sharing from/to NE States, Sikkim and Bagdogra; warehousing of seeds for sowing; coffee curing; Seamen’s Provident Fund Organisation; toll rights under TOT model; import of services by Indian establishments of foreign shipping lines from related persons without consideration (past period regularised)
Clarifications	Motor vehicle leasing recoveries; R&D self-certification for Entry 44A; Fund Transfer Pricing in banks treated as “interest”; O&M valuation under TOT model

9. What should businesses do now?

1. Do not act on recommendations alone. Continue under existing law until amendments and notifications are issued.
2. Exporters and IDS claimants: separate ITC on input services from 1 November 2026, and plan an asset-wise capital goods ITC register from 1 April 2027.
3. Keep returns reconciled: automated refunds are risk-based, so mismatches between GSTR-1, GSTR-3B and GSTR-2B may route claims for manual scrutiny.
4. Pending litigation: review notices and appeals below ₹10,000, penalty-only matters (pre-deposit cap), and pre-deposit refunds where interest is due.
5. Service exporters with foreign branches: map past and current transactions affected by section 2(6)(v) of the IGST Act, and await the amendment before taking any refund position.

For upcoming due dates, see our Compliance Calendar October 2026.

Frequently asked questions

When was the 57th GST Council meeting held?

The 57th GST Council meeting was held on 8 October 2026 in New Delhi, chaired by Union Finance Minister Smt. Nirmala Sitharaman.

Will GST refunds become automatic after the 57th GST Council meeting?

Partly. Refunds of excess cash ledger balance are to be fully auto-sanctioned. For zero-rated and inverted duty claims, 90% will be sanctioned provisionally by the system on risk evaluation in Phase 1. Full auto-sanction for zero-rated claims follows in Phase 2.

Can I claim refund of ITC on input services under the inverted duty structure?

The Council has recommended it for ITC on input services availed on or after 1 November 2026. It will apply only after section 54(3) of the CGST Act and the Rules are amended.

Is refund of ITC on capital goods allowed now?

It has been recommended for zero-rated and inverted duty refunds. It applies to ITC availed on or after 1 April 2027, spread over 60 months, subject to amendment of the law.

Has the power of arrest under GST been removed?

The Council has recommended omitting section 69 of the CGST Act. Until Parliament amends the Act, the existing provision continues.

What is the new minimum amount for a GST show cause notice?

The Council has recommended a minimum of ₹10,000 of tax (CGST + SGST + IGST + Cess) under sections 73, 74 and 74A. Pending notices and appeals below this amount are to be decided as if the threshold applied.

Arpan Bohra & Co., Chartered Accountants
Himayat Nagar, Hyderabad, Telangana
ab@arpanbohra.co.in | www.arpanbohra.co.in