Gujarat HC quashes GST cancellation order after officer relied on non-existent AI-generated judgments, mandates verification and warns violations may invite contempt

The petitioner challenged the show-cause notice dated 30 October 2025, the GST registration-cancellation order dated 15 December 2025, the order rejecting the revocation application dated 10 March 2026 and issued on 23 March 2026, and the appellate order dated 25 May 2026 along with GST APL-04 dated 26 May 2026.

In an earlier order dated 13 August 2026, the Court noted that the State Tax Officer appeared to have relied exclusively on AI-generated case law, including non-existent or irrelevant judgments.

The State Tax Officer filed an affidavit tendering an unconditional apology and attributed the error to his lack of experience as a probationary officer.

The State Tax Department subsequently issued administrative instructions regulating the use of AI in adjudication and quasi-judicial proceedings, including mandatory verification of AI-generated legal material and independent application of mind.

The respondents also stated that they intended to revise the impugned orders under Section 108 of the Goods and Services Tax Act, 2017, or, if necessary, issue a fresh show-cause notice.

Whether an adjudication order relying on non-existent or irrelevant AI-generated judgments, without independent verification or proper application of mind, could be sustained.

Whether the impugned show-cause notice, cancellation order, revocation-rejection order, and appellate order should be quashed and the matter remitted for fresh adjudication.

Whether directions should be issued to regulate the use of AI by adjudicating and quasi-judicial authorities.

The Court applied the principle that an adjudicating authority must independently verify the authenticity, citation, legal status, and relevance of every judgment, statutory provision, rule, circular, or notification identified through AI before relying upon it.

AI may assist legal research and drafting but cannot substitute the authority’s independent legal reasoning, human oversight, or application of mind; the ultimate responsibility for the correctness of the order remains with the issuing authority.

The Court further relied on Section 108 of the Goods and Services Tax Act, 2017, under which the Department proposed to revise the impugned orders.

It also directed strict compliance with the Department’s AI-use instructions and held that their violation would amount to contempt of court.

The Court found that the impugned order had relied on AI-generated authorities that were either non-existent or did not apply to the issue under consideration.

Such reliance demonstrated a failure of verification and independent application of mind, rendering the adjudicatory process legally unsustainable.

The State Tax Officer’s unconditional apology and the Department’s issuance of corrective instructions addressed the institutional issue, but did not validate the defective orders.

Since the respondents themselves accepted that the orders required revision or fresh adjudication, the Court considered it appropriate to set aside the entire sequence of impugned proceedings and require the Department to commence the matter afresh.

The Court also protected the petitioner’s procedural rights by directing that its reply and defence be duly considered and that a reasoned order be passed in accordance with law.

The respondent authority was directed to issue a fresh notice and pass a reasoned order after duly considering the petitioner’s reply and defence.

The petitioner was directed to cooperate with the proceedings, while all parties’ rights and contentions were left open.

The Court further directed strict compliance with the Department’s AI-use instructions, warning that any violation would amount to contempt of court.

The petition was accordingly disposed of.