Facts of the Case:
In this case, the petitioner challenged the proceedings relating to cancellation of its GST registration before the Gujarat High Court. The State Tax Officer, had issued a show cause notice dated 30 October 2025, followed by an order cancelling the petitioner’s GST registration dated 15 December 2025. The petitioner’s application for revocation of cancellation was thereafter rejected on 10 March 2026, communicated on 23 March 2026. The petitioner pursued the statutory appellate remedy, but the appellate order dated 25 May 2026, along with GST APL-04 dated 26 May 2026, also went against the petitioner.
During the hearing, the petitioner pointed out a serious defect in the order passed by the State Tax Officer. The officer had relied upon certain judicial decisions to support his conclusion, but the petitioner demonstrated that the cited authorities were either non-existent, inaccurately cited, or wholly irrelevant to the controversy. In particular, the officer had referred to State of Gujarat v. Aarbee Structures Pvt. Ltd., which, according to the petitioner, did not exist; M/s. Sri Vinayaga Agencies v. Assistant Commissioner, whose citation and ratio did not correspond with the proposition relied upon; and Jyoti Tar Products Pvt. Ltd. v. Deputy Commissioner, where again the citation and ratio did not support the conclusion reached by the officer.
Taking note of these submissions, the Court, in its order dated 13 August 2026, observed that it appeared that the impugned order had been passed by placing exclusive reliance upon AI-generated case laws. The Court consequently directed the Department to obtain instructions and indicated that the concerned State Tax Officer could be required to remain personally present if it was established that non-existent or irrelevant judgments had been relied upon.
On 20 August 2026, the concerned State Tax Officer, Shri Devang Arvindkumar Yadav, appeared before the Court and filed an affidavit tendering an unconditional apology. He stated that he was a probationary officer and, owing to lack of experience, had committed the mistake of using Artificial Intelligence for drafting the order and referring to non-existent and irrelevant judgments. He further informed the Court that, subsequent to the Court’s earlier order, he had attended a training programme concerning the use of AI in drafting adjudication/appellate orders.
The Department also placed before the Court administrative instructions issued by the Additional Commissioner of State Tax, Gujarat State, on 18 August 2026, prescribing safeguards for the use of AI by adjudicating and quasi-judicial authorities. These instructions required, inter alia, independent verification of AI-generated case laws and statutory references from primary sources, verification of the authenticity and current legal status of judgments, consideration of judgments relied upon by taxpayers, human oversight of AI-assisted research, and independent application of mind by the adjudicating authority.
Issue:
Whether an adjudication order concerning GST cancellation could be sustained where the authority had relied upon AI-generated judicial precedents which were non-existent, inaccurately cited or irrelevant to the issue under consideration.
Held That:
The Gujarat High Court accepted the Department’s undertaking that the entire matter would be reconsidered and that a fresh order would be passed in accordance with law. The Court accordingly quashed and set aside the show cause notice dated 30 October 2025, the GST cancellation order dated 15 December 2025, the order rejecting the revocation application dated 10 March 2026/communicated on 23 March 2026, and the appellate order dated 25 May 2026 along with GST APL-04 dated 26 May 2026. The Department was directed to issue a fresh notice to the petitioner and undertake the proceedings afresh. The Court specifically directed that the petitioner’s reply and defence must be duly considered and that a reasoned order, in accordance with law, must be passed. All rights and contentions of the parties were left open.
Importantly, the Court also directed that the AI-use instructions issued by the Additional Commissioner on 18 August 2026 be scrupulously followed, observing that violation of those instructions would amount to contempt of the Court. The Court thereby emphasised that AI may assist an adjudicating authority in research or drafting, but AI-generated output cannot replace the authority’s independent judicial application of mind.
The judgment lays down an important principle for AI-assisted GST adjudication: an adjudicating authority remains personally responsible for the accuracy, authenticity and legal sustainability of an order, irrespective of whether AI or any other technological tool was used in preparing it. Case laws, statutory provisions, rules, notifications and circulars identified through AI must be independently verified from authoritative primary sources before being relied upon. AI-generated or hallucinated precedents cannot constitute the basis of a quasi-judicial decision. The ruling also underscores that human oversight, verification of citations, consideration of the taxpayer’s authorities and independent application of mind are indispensable requirements of a legally sustainable GST order.
Case Name: FAIZ ENTERPRISE THROUGH PROPRIETOR MAHETAR MAHIR FARUKBHAI vs. STATE TAX OFFICER, UNIT-67, SURAT & ANR. dated 22.08.2026
Citation No. 2026 Taxo.online 2523
