Gujarat HC Quashes GST Cancellation Order Based on AI-Hallucinated Case Laws, Issues State-Wide Instructions
A Gujarat HC Division Bench quashed a GST registration cancellation order after the tax officer admitted to citing non-existent, AI-generated case laws, triggering state-wide instructions on AI use in adjudication.
A Division Bench of the High Court of Gujarat at Ahmedabad — comprising Justice A.S. Supehia and Justice Vaibhavi D. Nanavati — on 20 August 2026 quashed a series of GST orders passed against Faiz Enterprise after it emerged that the adjudicating officer had relied exclusively on case laws generated by Artificial Intelligence tools, none of which existed or applied to the dispute. The probationary State Tax Officer tendered an unconditional apology before the court, and the Gujarat GST administration issued state-wide instructions prohibiting reliance on unverified AI output in quasi-judicial orders. The court warned that future violations of those instructions would amount to contempt.
The GST Orders Under Challenge
Faiz Enterprise, a proprietorship, filed R/Special Civil Application No. 10123 of 2026 before the Gujarat High Court challenging four successive orders passed by tax authorities in Surat and by the first appellate authority. The chain of orders began with a show cause notice dated 30 October 2025, followed by a cancellation of GST registration dated 15 December 2025. A revocation application filed by the petitioner was rejected on 10 March 2026 and formally issued on 23 March 2026. The first appellate authority then passed an appellate order dated 25 May 2026, accompanied by Form GST APL-04 dated 26 May 2026, confirming the cancellation.
All four orders were passed by or under the authority of Respondent No. 1, the State Tax Officer, Unit-67, Surat, and Respondent No. 2, the appellate authority.
Counsel Flags Non-Existent Judgments in the Impugned Order
When the matter was first heard on 13 August 2026, advocate Mr. Hardik V. Vora, appearing for the petitioner, drew the court's attention to the case laws cited by the State Tax Officer in the impugned order. His submission was precise: none of the three judgments cited had any connection to the issue before the officer.
Mr. Vora pointed out that a judgment attributed to the citation State of Gujarat v. Aarbee Structures Pvt. Ltd., 2024 (4) TMI 951 “is not in existence.” A second citation — attributed to the Madras High Court in M/s. Sri Vinayaga Agencies v. Assistant Commissioner, 2023 (5) TMI 106 — carried a different citation and a ratio that did not apply. The third, attributed to the Calcutta High Court in Jyoti Tar Products Pvt. Ltd. v. Deputy Commissioner, 2024 (7) TMI 512, similarly did not match any known citation and its ratio was irrelevant to the case.
On 13 August 2026, the court recorded its prima facie view 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 obtain instructions, with the court warning that it would summon the State Tax Officer, Mr. D.A. Yadav, and initiate appropriate action if the advocate's submissions were found correct. The matter was placed at the top of the board for 20 August 2026.
The Officer's Unconditional Apology and What the Affidavit Disclosed
On 20 August 2026, Respondent No. 5 — Shri Devang Arvindkumar Yadav, the State Tax Officer who passed the impugned order — filed an affidavit-in-reply tendering an unconditional apology. The affidavit acknowledged that the judgments in the order were cited using Artificial Intelligence, and that the cited judgments were in fact non-existent and irrelevant.
The officer identified himself as a probationary officer and attributed the error to his lack of experience. He also informed the court that, after the order of 13 August 2026, he had attended a training programme titled “Usage of Artificial Intelligence (AI) in Drafting SCA and Adjudication/Appellate Order” conducted on 18 August 2026.
Senior officers were personally present before the court on 20 August 2026: Mr. Brijesh Upadhyay, Deputy Commissioner of State Tax (Court Branch), Rajyakar Bhavan, Ahmedabad; Mr. Ashok Karangiya, Deputy Commissioner of State Tax, Range-17, Surat; and Mr. S.R. Rathod, Assistant Commissioner of State Tax, Unit-67, Surat. The Assistant Government Pleader, Mr. Raj Tanna, tendered the affidavit-in-reply along with a communication dated 19 August 2026 from the Deputy State Tax Commissioner and administrative instructions issued by the Office of the Additional Commissioner of State Tax dated 18 August 2026.
The State's Administrative Instructions on AI Use
The Additional Commissioner of State Tax (Admin), Gujarat State, Ahmedabad issued instructions bearing No. CCT/Admin/instructions/2026-27/O.N:-53 dated 18 August 2026, addressed to Joint Commissioners of State Tax, Divisions 1 to 12, across Gujarat. The instructions were issued with the approval of the Chief Commissioner of State Tax and were expressly framed in light of the court's order of 13 August 2026.
The instructions set out five requirements for adjudicating and quasi-judicial authorities using AI tools. Any case law, statutory provision, rule, circular, or notification identified through AI must be independently verified against primary official sources before being incorporated in an order. Authorities must confirm accurate citation and relevance of judgments cited, verify that they have not been overruled, and reproduce verbatim the relevant paragraph from the original source if an AI tool paraphrases a ratio. Judgments cited by a taxpayer must be duly considered, and where found inapplicable, reasons must be recorded. AI use must be accompanied by appropriate human oversight, and orders must reflect the officer's own application of mind to the law and facts — AI output may assist in reasoning but cannot substitute it.
The instructions also stated that the ultimate responsibility for correctness lies with the issuing authority regardless of the tools used, and that failure to follow these instructions — including passing orders based on unverified AI content — would amount to misconduct and may attract disciplinary action.
Court Makes Instructions Judicially Binding
The Division Bench incorporated the full text of the administrative instructions dated 18 August 2026 into its order and directed that they be scrupulously followed. The court went further: any violation of those instructions would amount to contempt of court, given the directions issued by the bench. This converted what were departmental administrative instructions into judicially enforceable obligations across Gujarat's GST adjudicating machinery.
Merits: All Orders Quashed, Fresh Process Ordered
On the merits of the petition, the Assistant Government Pleader Mr. Raj Tanna candidly stated that the respondents intended to revise all the impugned orders under Section 108 of the Goods and Services Tax Act, 2017, and proposed to issue a fresh show cause notice. The court noted and appreciated the fair stance taken by the respondents.
The bench quashed and set aside all four orders: the show cause notice dated 30 October 2025, the cancellation order dated 15 December 2025, the order rejecting the revocation application dated 10 March 2026 (issued 23 March 2026) passed by Respondent No. 1, and the appellate order dated 25 May 2026 along with GST APL-04 dated 26 May 2026 issued by Respondent No. 2.
The respondent authority was directed to issue a fresh show cause notice. The petitioner was directed to fully co-operate with the fresh proceedings. The court clarified that the reply and defence put forward by the petitioner must be duly considered by the respondent authority when passing the fresh order, and that a reasoned order in accordance with law must be passed. All rights and contentions of the respective parties were left open.
Order
The Division Bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati disposed of R/Special Civil Application No. 10123 of 2026 on 20 August 2026. The show cause notice dated 30 October 2025, the GST registration cancellation order dated 15 December 2025, the order rejecting revocation dated 10 March 2026, and the appellate order dated 25 May 2026 with GST APL-04 dated 26 May 2026 were all quashed and set aside. The respondent authority was directed to issue a fresh notice and pass a reasoned order after considering the petitioner's reply. The administrative instructions dated 18 August 2026 were incorporated into the order and their violation declared to be contempt of court. The petition was disposed of accordingly.