The Gujarat High Court has quashed a series of GST proceedings against a company, Faiz Enterprise, after finding that the State Tax Officer had relied on AI-generated case laws, including authorities that did not exist or were unrelated to the dispute.
The court also directed tax authorities to strictly comply with departmental safeguards on the use of artificial intelligence, warning that any breach of those instructions would amount to contempt of court.
A division bench of Justices AS Supehia and Vaibhavi D Nanavati passed the order on August 20, seen by Moneycontrol, in a Special Civil Application filed by Faiz Enterprise, through its proprietor Mahetar Mahir Farukbhai, against Surat’s State Tax Officer and another authority.
The dispute came before the court after the petitioner challenged the tax order, pointing out that the authorities cited in it did not support the conclusions reached.
In its earlier order of August 13, the court recorded the petitioner’s submission that the cited decision in State of Gujarat v Aarbee Structures Pvt Ltd, 2024 (4) TMI 951, did not exist.
It also noted that the Madras High Court decision in M/s Sri Vinayaga Agencies v Assistant Commissioner, 2023 (5) TMI 106, had a different citation and did not have the ratio attributed to it.
Similarly, the Calcutta High Court judgment in Jyoti Tar Products Pvt Ltd v Deputy Commissioner, 2024 (7) TMI 512, did not correspond with the citation or apply to the issue before the officer.
The court observed then: “It appears that the impugned order has been passed by the State Tax Officer by placing reliance exclusively on the AI-generated case laws.”
Officer tenders unconditional apology
On August 20, Assistant Government Pleader Raj Tanna produced the affidavit of State Tax Officer Devang Arvindkumar Yadav, who was personally present in court, the judgment said. Deputy Commissioner Brijesh Upadhyay, Deputy Commissioner Ashok Karangiya and Assistant Commissioner SR Rathod were also present.
Yadav acknowledged that the judgments cited in the order had been generated using AI. In his affidavit, he said he was a probationary officer and that the error occurred because of his lack of experience. He tendered an unconditional apology for using AI while drafting the order and referring to non-existent and irrelevant judgments.
The officer also informed the court that he had subsequently attended a training programme on “usage of Artificial Intelligence (AI) in Drafting SCA and adjudication/appellate order” conducted on August 18.
Gujarat tax department issues AI safeguards
Following the court’s August 13 order, Ahmedabad’s Additional Commissioner of State Tax (Admin), issued instructions dated August 18 to Joint Commissioners of State Tax.
The instructions say AI is intended only to assist adjudicating and quasi-judicial authorities. Any case law, statutory provision, rule, circular or notification identified through AI must be independently checked against primary official sources before being used in an order.
Authorities must also confirm the accuracy, relevance and current legal status of judgments, including whether they have been overruled. Where AI paraphrases a legal ratio, the officer must locate the original paragraph and reproduce it verbatim before relying on it.
The instructions further require officers to consider judgments cited by taxpayers and give reasons if those authorities are found inapplicable. Orders must demonstrate independent legal reasoning and the officer’s own application of mind. “AI output may assist in reasoning but cannot substitute it,” it said.
The instructions place ultimate responsibility for an order’s correctness on the issuing authority. Failure to comply, including passing orders based on unchecked AI material, may constitute misconduct and invite disciplinary action.
The instructions place ultimate responsibility for an order’s correctness on the issuing authority. Failure to comply, including passing orders based on unchecked AI material, may constitute misconduct and invite disciplinary action.
GST proceedings quashed, fresh notice ordered
On the underlying dispute, the State said it intended to revise the impugned orders under Section 108 of the Goods and Services Tax Act, 2017, and issue a fresh order. The court appreciated the State’s position and set aside the proceedings.
The bench quashed orders from 2025 and a show-cause notice issued in May 2026.
The department was directed to issue a fresh notice. Faiz Enterprise was required to cooperate, while its reply or defence must be considered before a reasoned order is passed in accordance with law. The rights and contentions of both sides were left open.
Gujarat HC’s broader AI policy
The development comes against the backdrop of the Gujarat High Court’s AI policy unveiled on April 4 this year. The policy prohibits AI from being used for judicial decision-making, adjudication, legal reasoning, interpretation of facts, determination of rights and liabilities, sentencing, bail, interim orders or final judgments.
It also bars AI from authoring or substantially composing judgments or binding legal rulings, and prohibits the use of AI-generated citations or statutory provisions without independent verification from authoritative primary sources.
At the same time, the policy permits AI for administrative and productivity functions and for legal research, retrieval or analysis of judgments, identification of precedents and statutory interpretation as preparatory work, provided there is human oversight and independent verification.
The policy stresses that AI should function as a decision-support and administrative tool rather than replace human judicial reasoning. Judges and court officers remain personally responsible for the accuracy and appropriateness of AI-assisted material used in their official work.
