It also said the recipient of the tax notice should not be penalized under different provisions of the GST law for the same offence, if penalty has already been levied on the recipient under one provision of GST law.

"With these clarifications the Government has tried to ensure that the GST authorities do not go beyond the scope of law on discovery of such fraudulent instances," said Jain of KPMG.

Abhishek A Rastogi, partner, Khaitan & Co, said with the clarification, there are chances that the arrests on this issue significantly come down.

"The clarification is provided with respect to what constitutes 'supply' and in cases of circular trading there may not be tax brunt in several cases when the transaction does not qualify as supply. This was the argument advanced in various courts as well", said Abhishek A Rastogi partner at Khaitan & Co, who is arguing dozens of such petitions in multiple courts.

"There are several orders of the court including the famous case of Sapna Jain versus union of India wherein the Bombay High Court passed an interim order that no coercive action must be taken. The constitutional validity with respect to arrest provisions are under challenge as there was an absence of tax leakage due to the definition of supply. This has now been addressed by the recent circular and there are fair chances that the cases involving judicial custody would come down," added Rastogi.

The government in May had issued a circular against coercive recoveries by tax officers. The overall situation with respect to GST would tremendously improve when this is implemented on the ground level.

The Board has also clarified that GST payable as a result of departmental audits and assessments can be made using GST credits, instead of cash payments, a move that will help several businesses that have accumulated tax credits.

"It was a much-needed clarification as "some ground level authorities were asking Companies to make cash payments for GST liabilities arising out of the audits and assessments," said Jain.