P&H High Court sets aside GST notice which contained AI suggestions on how it could be improved

The Punjab and Haryana High Court recently set aside a show-cause notice issued by GST tax authorities in Amritsar, finding that it was prepared using Artificial Intelligence (AI) tools [SRO India v State of Punjab and Others].

The DRC01A notice issued to a company, namely SRO India, contained an annexure referring to various AI-based aids, including suggestions on how the order could be drafted or improved. A DRC01A notice is usually issued for unpaid taxes, interest, or penalties.

In a verdict dated July 7, a Bench of Acting Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor said the law expects the competent authority not only to examine the facts of the case, but also apply their mind before issuing a show cause notice. 

Use of an AI Tool for the preparation and issuance of a show-cause notice is not permissible under the statute, the Bench held.

“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 ordered.

The petitioner, SRO India, contended that the concerned officer failed to apply their mind to the facts of the case, relying instead on an AI tool for the issuance of the notice.

The Court was told that the enhancement suggested by the AI Tool was uploaded on the department portal along with the show-cause notice.

In response, the State counsel said references to AI at the fag end of the show cause notice had inadvertently been uploaded on the portal.

However, the Court was not convinced by the explanation and quashed the show-cause notice. 

The Court, however, clarified that the competent authority can pass a fresh order in accordance with law, by examining the facts of this case with independent application of mind.

Advocates Muskan Gupta and Vivek Sharma represented the petitioner.

Additional Advocate General Samdisha Kaur appeared for the State of Punjab.

[Read Judgment]