The Punjab and Haryana High Court has quashed a GST show cause notice, holding that it was issued primarily based on an Artificial Intelligence (AI) tool whose use was not shown to have any statutory backing under the law.
The challenge was discovered on a document annexed to the Show Cause Notice (SCN) and uploaded on the portal of the department. The document referred to various AI-based aids and included suggestions to “Tighten this further with case-law citation paragraph-wise”, convert it into “Order-in-Original reasoning” and “make it lethal”.
A division bench of Acting Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor said that the competent authority must analyse the facts of the case and apply his or her own mind before issuing an SCN.
“We are not impressed by the explanation offered on behalf of the respondent-Department inasmuch as the statute expects the competent authority not only to examine the facts of the case, but also apply his/her mind before issuing a show cause notice. Use of an AI Tool for preparation and issuance of show cause notice is not shown to be permissible under the statute.”, the court stated.
SRO India had submitted the petition which contested the SCN dated February 2, 2025. It claimed that the pertinent officer didn’t use his mind to the facts of the matter and had instead resorted to the use of an Artificial Intelligence (AI) tool while issuing the notice.
The challenge was grounded on the document annexed to the notice and uploaded on the portal of the department. As per the Court, the document referred to various AI-based aids and included recommendations concerning how the order could be passed or improved.
The material reproduced in the order included an “Optional Enhancement” proposal to “Tighten this further with case-law citation paragraph-wise”, “Convert it into Order-in-Original reasoning”, “Add ‘knowledge and connivance inferred from facts’ language”, and “Draft a defence-proof rebuttal against ‘buyer not responsible’ plea.” It also included the prompts, “Just say ‘add OIO version’ or ‘make it lethal’.”
SRO India counsel said that the SCN had been prepared with the use of AI and that the application of mind needed of the officer under the law was not present.
As per the State Tax Officer, the State expressed that the AI references appearing at the end of the SCN had accidentally been uploaded on the portal.
The court does not accept the explanation. It mentioned that the department did not show that the usage of an AI tool for preparing and issuing the show-cause notice was allowable under the law.
Read Also: Punjab & Haryana HC Calls GST Notice Vague for Alleging Excess ITC Without Evidence
“Since we find that the show cause notice has been issued primarily relying upon the AI Tool, which does not have the requisite sanction in law, as such the said show cause notice (DRC-01A) dated 02.02.2025 and the consequential proceedings thereof cannot be sustained in law and are quashed, accordingly.”, the court stated.
The Court set aside the SCN and the consequential proceedings. It provides a chance to the competent authority to pass a fresh order as per the law after analysing the facts of the matter with independent application of mind.
| Case Title | M/s. SRO India vs. State of Punjab and Another |
| Case No. | CWP-11494-2026 (O&M) |
| For Petitioner | Muskan Gupta and Vivek Sharma |
| For Respondent | Samdisha Kaur and Gagan Sharma |
| Punjab & Haryana High Court | Read Order |
