Judicial Warning: AI-Generated "Fake" Case Laws Lead to Remand in GST Dispute

Judicial Warning: AI-Generated “Fake” Case Laws Lead to Remand in GST Dispute

The Legal Issue

The case addresses a “very worrying trend” where a quasi-judicial authority (the GST Commissioner) relied on non-existent or entirely irrelevant judicial precedents—likely generated by Artificial Intelligence (AI)—to reject a taxpayer’s defense, thereby vitiating the entire adjudication process under Section 75.

Facts Of Case

The Order: The Additional Commissioner of Central GST passed an order on September 26, 2025, rejecting four core defense arguments raised by the petitioner, Marhabba Overseas Private Limited.
The “Hallucinations”: To support the rejection, the Commissioner cited several cases:
- Coastal Container Transporters Association: Cited for non-supply of documents, but actually dealt with service classification.
- NKAS Services: Attributed to the Madras High Court (which does not exist); the relevant ruling was actually from the Jharkhand High Court and favored the assessee.
- Flock India & Rajasthan State Chemical Works: Cited as Gujarat High Court rulings but were actually Supreme Court cases or entirely irrelevant to the natural justice issues at hand.
The Discovery: Senior Advocate S.N. Soparkar pointed out that these citations appeared to be “blindly generated through AI” as they were either untraceable, misattributed, or legally unrelated.

The Decision

The Gujarat High Court (Justice A.S. Supehia and Justice Pranav Trivedi) stayed the order and delivered a stern rebuke to the department:

Deceptive Reasoning: The Court held that the findings were “flawed and deceptive.” It observed that the Commissioner failed to read the actual judgments and instead relied on “hallucinated” AI outputs.
Breach of Duty: A quasi-judicial authority has a duty to apply their own “independent judicial mind.” Substituting human verification with unverified AI citations erodes the architecture of natural justice.
Need for Guidelines: The Court recognized that this was a fit case to prescribe specific parameters and directions for quasi-judicial authorities on how to verify and refer to precedents from the High Courts or Supreme Court.
Outcome: In favour of the assessee (Interim relief granted; matter listed for framing of guidelines).

Key Takeaways

Verify Every Citation: Taxpayers and practitioners should meticulously verify every case law cited in a DRC-07 order. If the citations are “fake” or irrelevant, the order can be challenged as a violation of natural justice.
AI is a Tool, Not a Judge: While AI can assist in research, it cannot replace the responsibility of an adjudicating officer to verify the law. An order based on “hallucinated” data is legally unsustainable.
Standard of Adjudication: This ruling sets a precedent that “mechanical adjudication”—where an officer copy-pastes unverified summaries—will lead to the quashing of tax demands in the High Court.

HIGH COURT OF GUJARAT

Marhabba Overseas (P.) Ltd.

Union of India^*

A.S. Supehia and Pranav Trivedi, JJ.

R/SPECIAL CIVIL APPLICATION NO. 2229 of 2026

FEBRUARY 20, 2026

S N Soparkar, Sr. Adv., Parth H Bhatt, Ms Khyati A Chugh and Sudeep Biswas for the Petitioner. Ankit Shah and Pradip D Bhate for the Respondent.

ORDER

A.S. Supehia, J.- During the course of hearing, learned Senior Advocate Mr. Soparkar has pointed out very worrying trend adopted by the Additional Commissioner, Central GST and Central Excise, while passing the impugned order dated 26.09.2025, by placing reliance on the non existing judgements or though in existence, albeit not even remotely connected to the issues raised by the petitioner in his defence statement dated 22.09.2025. While referring to four core defence submissions more particularly, in paragraph Nos.19.1, 19.2, 19.3 and 19.4 referred to in the impugned order, he has invited attention of this Court to the citations, upon which the reliance is placed while dealing with such submissions made by the respondent authority.

2. The defence submission recorded by the Officer in paragraph No.19.1 of the impugned order, relates to the issuance of defective and unreasonable show-cause notice dated 29.06.2025, which was uploaded on GST Portal without annexing or supplying the Relied Upon Documents (RUDs) to the assessee. The said defence submission has been rejected by the Officer by placing reliance on the judgement in the case of Union of India v. Coastal Container Transporters Association GST 211 (SC)/2019 SCC OnLine SC 1744. Learned Senior Advocate has submitted that in fact, the said citation appears to be incorrect and instead page number is 274 instead of 1744. It is submitted that though there is some error in recording the page number, the judgement rendered by the Supreme Court does not even remotely connects to the issue relating to the non-supplying of the RUDs, but instead the same relates to the classification of the service and maintainability of the writ petition against the show-cause notice.

3. The second defence submission as recorded in paragraph No.19.2 raised by the petitioner relates to the mandatory requirement of issuance of DRC-01A as per Rule 142A of the Central Goods and Service Tax (CGST) Rules, 2017 which are not complied with and correspondingly it is submitted that the respondent has rejected the said contention by placing reliance on the judgement of the Madras High Court in the case of NKAS Service (P) Ltd v. Union of India [2021-VIL 37-MAD] In this regard, learned Senior Advocate has submitted that in fact, neither the citation exists nor their any judgement of Madras High Court, and as per research undertaken by his office, the said judgement is delivered by the Jharkhand High Court in the case of NKAS Services (P.) Ltd. v. State of Jharkhand GST 736/58 GSTL 257 (Jharkhand)/2021 SCC OnLine Jharkhand 1266 and while inviting attention of this Court to the said judgement, it is submitted that in fact, the Jharkhand High Court has held in favour of the petitioner by holding that the issue under GST DRC-01A has to fulfill ingredients of proper show-cause notice and in absence of such ingredients, the same would amount to violation of principles of natural justice.

4. Learned Senior Advocate has further referred to the defence submission recorded in paragraph No.19.3 of the impugned order, which relates to delayed re-initiation of investigation and issuance of show-cause notice for the same cause of action. It is submitted that while dealing with the said submission, the respondent authority has placed reliance on the judgement of the Supreme Court in the case of CCE v. Flock (India) (P.) Ltd ELT 285 (SC). In this regard, learned Senior Advocate has submitted that this judgement has no relevance to the defence submission, which has been raised by the petitioner and it relates to the classification rules under Central Excise Act, 1944 and also relating to the issue of refund.

5. Finally, learned Senior Advocate has referred to the defence submission recorded in paragraph No.19.4 of the impugned order, which pertains to the gross violation of principles of natural justice since no adequate time and opportunity was provided to respond to the allegations contained in the show-cause notice against the petitioner. It is submitted that while dealing with such defence submission, though the respondent authority has precisely placed reliance on the judgement of the Supreme Court in the case of Union of India v. W.N. Chadha [1993 Supp (4) SCC 260], but has also simultaneously, reliance is placed on the judgement of the Gujarat High Court in the case of Rajasthan State Chemical Works v. Union of India, 1991 55 ELT 444 (Guj), which is absolutely ill-conceived. It is submitted that in fact, no such judgement of the Gujarat High Court exists and as per the research done by him, the judgement is of the Supreme Court rendered in the case of CCE v. Rajasthan State Chemical Works ELT 444 (SC). Thus, it is submitted that though the citation is correct, the same is of the Supreme Court and not of the Gujarat High Court and it emanates from the decision of Customs, Excise & Service Tax Appellant Tribunal, Delhi and not from the Gujarat High Court. It is submitted that the said decision also refers to the meaning of manufacturing process under the CGST Act and does not deal with the defence submissions raised by the petitioner relating to the violation of principles of natural justice.

6. Thus, it is urged by the learned Senior Advocate that some guidelines are required to be prescribed to the quasi-judicial authorities in referring to the judgements blindly generated through Artificial Intelligence, which are not in existence and even if they are in existence, they do not remotely apply to the issues raised by the assessee.

7. The foregoing submissions and the concern expressed by the learned senior advocate Mr. Soparkar merits acceptance. The reasonings/findings recorded by the respondent Commissioner, while dealing with the defence submissions, by placing reliance on the aforementioned judgement/citations, is flawed and deceptive. It appears that the Commissioner, without reading the actual judgements, has followed the AI generated citations and case law.

8. Hence, we find that this is an appropriate case, wherein some directions are called for regulating/prescribing some parameters for quasi judicial authorities while placing reliance on the judgements either of the High Courts or of the Supreme Court of India, while dealing with legal issues raised by an assessee. We also call upon learned Senior Standing Counsel Mr. Ankit Shah to apprise this Court on this concern by the next date of hearing.

9. Notice returnable on 12.03.2026. Matter to be placed at the top of the board. Learned Senior Standing Counsel Mr. Shah waives service of notice for and on behalf of the respondent(s).

10. Interim relief is granted in terms of paragraph No.17(c) till the final disposal of the writ petition. Direct service is permitted.