AI Tool Has No Sanction In Law To Prepare And Issue GST Show Cause Notice: Punjab & Haryana High Court

The Punjab and Haryana High Court has recently quashed a GST show cause notice after holding that it had been issued primarily by relying upon an Artificial Intelligence (AI) tool, the use of which was not shown to have statutory sanction.

The challenge was founded on a document annexed to the show cause notice and uploaded on the department's portal. The document referred to various AI-based aids and included suggestions to "Tighten this further with case-law citation paragraph-wise", convert it into "Order-in-Original reasoning" and "make it lethal".

A division bench of Acting Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor held that the competent authority is required to examine the facts of the case and apply his or her own mind before issuing a show cause notice.

"We are not impressed by the explanation offered on behalf of the respondent-Department inasmuch as the statute expects the competent authority not only to examine the facts of the case, but also apply his/her mind before issuing a show cause notice. Use of an AI Tool for preparation and issuance of show cause notice is not shown to be permissible under the statute.", the court ruled.

The petition was filed by SRO India, which challenged the show cause notice dated February 2, 2025. It contended that the officer concerned had not applied his mind to the facts of the case and had instead resorted to the use of an AI tool while issuing the notice.

The challenge was based on the document annexed to the notice and uploaded on the department's portal. According to the court, the document referred to various AI-based aids and contained suggestions regarding how the order could be passed or improved.

The material reproduced in the order included an "Optional Enhancement" offering to "Tighten this further with case-law citation paragraph-wise", "Convert it into Order-in-Original reasoning", "Add 'knowledge and connivance inferred from facts' language", and "Draft a defence-proof rebuttal against 'buyer not responsible' plea." It also contained the prompts, "Just say 'add OIO version' or 'make it lethal'."

Counsel for SRO India argued that the show cause notice had been prepared with the use of AI and that the application of mind required of the officer under the statute was absent.

On instructions from the State Tax Officer, the State submitted that the AI references appearing at the end of the show cause notice had inadvertently been uploaded on the portal.

The court rejected the explanation. It held that the department had failed to show that the use of an AI tool for preparing and issuing the show cause notice was permissible under the statute.

"Since we find that the show cause notice has been issued primarily relying upon the AI Tool, which does not have the requisite sanction in law, as such the said show cause notice (DRC-01A) dated 02.02.2025 and the consequential proceedings thereof cannot be sustained in law and are quashed, accordingly.", the court ruled.

The court quashed the show cause notice and the consequential proceedings. It granted liberty to the competent authority to pass a fresh order in accordance with law after examining the facts of the case with independent application of mind.

For Appellants: Advocate Muskan Gupta and Vivek Sharma

For Respondents: Samdisha Kaur, AAG assisted by Gagan Sharma, STO