Gujarat HC Quashes GST Order Based on Fake AI Case Laws, Mandates AI Safeguards [Read Judgment]

Ahmedabad: The Gujarat High Court has quashed a GST registration cancellation order after finding that the State Tax Officer had relied exclusively on Artificial Intelligence-generated case laws that were either non-existent or wholly irrelevant to the issue, and has directed that state-wide instructions on the use of AI by adjudicating and quasi-judicial authorities be scrupulously followed, warning that any violation would amount to contempt of court.

A Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati was hearing R/Special Civil Application No.10123 of 2026 filed by Faiz Enterprise, through its proprietor, challenging the cancellation of its GST registration, the rejection of its revocation application, and the appellate order upholding cancellation.

On 13 August 2026, while hearing the matter, the court noted that counsel for the petitioner had pointed out that the impugned order of the State Tax Officer, Unit-67, Surat, relied upon case laws that either did not exist or did not apply to the issue at hand including a purported Gujarat High Court decision in State of Gujarat v. Aarbee Structures Pvt. Ltd. said not to be in existence, and citations of Madras and Calcutta High Court decisions that did not match the judgments actually referred to.

The court had observed on that occasion “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 Assistant Government Pleader was directed to take instructions, failing which the court would summon the officer concerned and consider initiating appropriate action against him if the allegations regarding fabricated and inapplicable case laws were found to be correct.

When the matter was taken up again on 20 August 2026, the State Tax Officer, Mr. Devang Arvindkumar Yadav who had passed the impugned order along with other senior officers of the Department, appeared in person. He tendered an unconditional apology through an affidavit-in-reply, explaining that he was a probationary officer and that the mistake had occurred due to his lack of experience in citing judgments generated through AI. He also informed the court that he had since attended a departmental training programme on the use of AI in drafting adjudication and appellate orders.

The court further placed on record that, pursuant to its earlier order, the Additional Commissioner of State Tax (Admin), Gujarat State, had issued instructions dated 18 August 2026 to all Joint Commissioners of State Tax across the State, prescribing safeguards for the use of AI tools in adjudication. The instructions required that any case law or provision identified through AI be independently verified from primary official sources, that officers reproduce the verbatim text of a judgment before relying on an AI-paraphrased ratio, that AI use be accompanied by human oversight, and that orders continue to reflect the officer's own independent legal reasoning, with responsibility for correctness remaining on the issuing authority regardless of the technology used. The instructions further recorded that failure to comply, including passing orders on unverified AI content, would amount to misconduct inviting disciplinary action.

Terming these departmental instructions the operative safeguard going forward, the court directed “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, in view of the directions issued by us.”

On the merits, the Assistant Government Pleader fairly submitted that the respondents intended to revise the impugned orders under Section 108 of the Goods and Services Tax Act, 2017, and would issue a fresh show cause notice. 

Accepting this stance, the court quashed and set aside the show cause notice dated 30 October 2025, the cancellation order dated 15 December 2025, the order rejecting revocation dated 10 March 2026, and the appellate order dated 25 May 2026 along with the connected GST APL-04, directing the respondent authority to issue a fresh notice, duly consider the petitioner's reply, and pass a reasoned order in accordance with law, keeping all rights and contentions of the parties open.

Appearances:

For the Petitioner: Mr. Hardik V. Vora, Advocate.

For the Respondents: Mr. Raj Tanna, Assistant Government Pleader.

Case Title: Faiz Enterprise, through Proprietor Mahetar Mahir Farukbhai vs. State Tax Officer, Unit-67, Surat & Anr., R/Special Civil Application No. 10123 of 2026 [2026:GUJHC:53490-DB]

[Read Judgment]