Gujarat High Court Quashes GST Orders Based On AI-Generated Non-Existent Case Laws
The Gujarat High Court on 20 August quashed GST cancellation and appellate proceedings against Faiz Enterprise after finding that the State Tax Officer had relied exclusively on AI-generated case laws, including non-existent and irrelevant authorities.
A Division Bench comprising Justices A.S. Supehia and Vaibhavi D. Nanavati held that adjudication proceedings cannot be sustained where an authority relies on unverified AI-generated case laws instead of independently applying its mind to the law. They judges held:
“It appears that the impugned order has been passed by the State Tax Officer by placing reliance exclusively on the AI generated case laws.”
The Court had earlier questioned the State Tax Officer after Faiz Enterprise pointed out that one of the judgments cited in the impugned order did not exist, while other decisions had incorrect citations or ratios that were not relevant to the issue before the officer.
The State Tax Officer subsequently filed an affidavit tendering an unconditional apology and admitted that the judgments cited in the impugned order had been identified using Artificial Intelligence and included non-existent and irrelevant authorities. The officer stated that he was a probationary officer and had subsequently attended a training programme on the use of AI in drafting adjudication and appellate orders.
Following the Court's intervention, the Additional Commissioner of State Tax issued detailed instructions governing the use of AI by adjudicating and quasi-judicial authorities which require officers to independently verify every case law, statutory provision, rule, circular or notification identified through AI using primary official sources before incorporating it into an order.
They also require officers to verify the authenticity and current legal status of judgments, reproduce the original paragraph where an AI tool has paraphrased a ratio, consider judgments cited by taxpayers and ensure human oversight and independent application of mind. They further clarify that AI output may assist an officer's reasoning but cannot substitute the officer's own legal reasoning.
The High Court directed strict compliance with the safeguards, observing:
“We direct that the instructions dated 18/08/2026, which we have incorporated in our order shall be scrupulously followed, and any violation of the instructions would amount to contempt of this Court.”
On the underlying GST dispute, the Department agreed to revise the orders and issue a fresh show cause notice. The Bench consequently quashed the show cause notice dated 30 October 2025, cancellation order dated 15 December 2025, order rejecting revocation, appellate order dated 25 May 2026 and the consequential GST APL-04.
Accordingly, the High Court directed the Department to commence fresh proceedings, duly consider Faiz Enterprise's defence and pass a reasoned order in accordance with law.
Counsel for the Petitioner: Hardik V. Vora, Advocate
Counsel for the Respondents: Raj Tanna, AGP