The Punjab & Haryana High Court has quashed a GST Show Cause Notice (SCN) after finding that it had been prepared using an Artificial Intelligence (AI) tool without the independent application of mind required under law.
The bench of Acting Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor has observed that the GST statute does not authorize the issuance of show cause notices generated primarily with the assistance of AI and emphasized that statutory authorities must personally evaluate the facts before initiating proceedings.
The controversy arose after the petitioner challenged a Show Cause Notice (DRC-01A) dated February 2, 2025, alleging that the officer had failed to independently examine the facts and had instead relied upon an AI tool to prepare the notice.
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The challenge was based on a document uploaded along with the show cause notice on the GST portal. The uploaded material contained unmistakable AI-generated prompts and suggestions such as “Optional Enhancement (for Order-in-Original)”, “Tighten this further with case-law citation paragraph-wise”, “Convert it into Order-in-Original reasoning”, “Add ‘knowledge and connivance inferred from facts’ language”, “Draft a defence-proof rebuttal against ‘buyer not responsible’ plea” and “Just say ‘add OIO version’ or ‘make it lethal'”.
These AI-generated suggestions formed part of the uploaded record accompanying the notice, prompting the taxpayer to contend that the officer had delegated the statutory decision-making process to an AI tool instead of exercising independent judgment.
During the hearing, the State Government submitted that the references to AI appearing at the end of the show cause notice had been uploaded on the GST portal inadvertently and should not be construed as evidence that the notice itself had been improperly prepared.
However, the High Court was not persuaded by this explanation. The Bench observed that the statutory framework obliges the competent authority to examine the facts independently and apply its own mind before issuing a show cause notice. Merely describing the AI references as an inadvertent upload could not cure the underlying defect reflected in the record.
Rejecting the State’s explanation, the Court made it clear that the use of AI in preparing and issuing a show cause notice lacks statutory authorization.
The Bench observed that the law expects the competent authority to independently assess the material before initiating proceedings and that this responsibility cannot be substituted by an AI-generated draft or reasoning. Since the impugned notice appeared to have been issued primarily by relying upon an AI tool, the Court concluded that it suffered from a fundamental legal infirmity.
Holding that the notice had been issued without the independent application of mind mandated by law, the High Court quashed the DRC-01A Show Cause Notice dated February 2, 2025, along with all consequential proceedings arising from it.
At the same time, the Court protected the interests of the tax department by granting liberty to the competent authority to initiate fresh proceedings in accordance with law after independently examining the facts and applying its own mind.
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