AI-Generated fake citations and flawed reasoning in GST Orders: Gujarat HC Flags 'Flawed and Deceptive' Adjudication in Marhabba Overseas

Abstract

In M/s. Marhabba Overseas Private Limited Versus Union of India & Ors. - 2026 (3) TMI 291 - GUJARAT HIGH COURT., the Gujarat High Court expressed serious concern over a GST adjudication order that relied upon non-existent, misquoted, and irrelevant judicial precedents, and prima facie observed that the adjudicating authority appeared to have followed AI-generated citations without reading the actual judgments. The Court described such reasoning as 'flawed and deceptive'.

The decision is significant because it strengthens the legal position that an adjudication order founded on fictitious or irrelevant authorities may be challenged as one passed without proper application of mind, in breach of natural justice, and as a non-speaking / mechanical order liable to be quashed.

Factual Background

The petitioner challenged an adjudication order dated 26.09.2025 on the ground that while rejecting the assessee's core defences, the adjudicating authority relied upon judgments that were either:

• incorrectly cited,
• wrongly attributed,
• non-existent in the form quoted, or
• wholly irrelevant to the issues raised.

The disputed issues included:

1. non-supply of Relied Upon Documents (RUDs);
2. non-compliance with DRC-01A procedure;
3. delayed re-initiation of proceedings; and
4. violation of natural justice.

Key Observation of the Gujarat High Court

The Court made the following important prima facie observation:

'The reasonings/findings recorded by the respondent-Commissioner... is flawed and deceptive. It appears that the Commissioner, without reading the actual judgements, has followed the AI generated citations and case law.'

The Court also indicated that guidelines / parameters may be required for quasi-judicial authorities while relying on judicial precedents.

Legal Significance

A significant legal issue arising from M/s Marhabba Overseas is whether an adjudication order founded on fake, non-existent, or irrelevant case law can be challenged as one passed without proper application of mind. In the author's respectful view, the answer is clearly in the affirmative. A quasi-judicial authority is under a statutory obligation to independently examine the assessee's defence, identify the precise legal controversy, and record reasons based on applicable law. Where the authority rejects substantive legal submissions by relying on judgments that do not exist, are wrongly attributed, or have no nexus with the controversy, it strongly indicates that the matter has not been adjudicated through an independent judicial exercise. In such circumstances, the order ceases to be a reasoned adjudicatory determination and becomes vulnerable as a mechanical order passed without due application of mind.

The issue also directly engages the doctrine of natural justice. Compliance with natural justice is not achieved merely because a show cause notice has been issued and an opportunity of hearing has been granted. The law requires not only an opportunity to be heard, but also a corresponding duty on the adjudicating authority to meaningfully consider the defence raised by the taxpayer. If the authority purports to answer the assessee's submissions by invoking AI-hallucinated, fictitious, or irrelevant precedents, the process of hearing is reduced to a mere formality. In such a case, although the taxpayer may have been heard in form, he has not been heard in substance. The adjudicatory process therefore suffers from a serious infirmity amounting to breach of principles of natural justice.

At the same time, it is necessary to maintain a legal distinction between a mere citation error and a fundamentally defective adjudicatory exercise. Every incorrect or inexact citation may not, by itself, render an order invalid. However, where the authority relies on a non-existent judgment, a misattributed precedent, or a case that is wholly irrelevant to the issue under consideration, and uses such citation as the basis to reject substantive submissions of the assessee, the defect ordinarily travels far beyond a technical lapse. It goes to the very root of the adjudication process, because it demonstrates that the authority has not applied the correct law to the controversy before it. In such cases, the defect is not merely curable or incidental, but may be sufficiently grave to justify the order being set aside as legally unsustainable.

Supporting Legal Position

Courts have repeatedly held that mechanical, vague, and non-speaking GST orders are liable to be set aside. The following principles are well recognised:

Practical Litigation Relevance

In similar cases, the assessee may challenge the order on the following grounds:

• Order passed without application of mind;
• Violation of principles of natural justice;
• Non-speaking / arbitrary order; and
• Reliance on unverified AI-generated material.

Conclusion

The Gujarat High Court's order in M/s. Marhabba Overseas Private Limited Versus Union of India & Ors. - 2026 (3) TMI 291 - GUJARAT HIGH COURT. is a significant warning against the unverified use of AI in tax adjudication. It reinforces an important principle:

'A quasi-judicial order must reflect the mind of the authority, not the hallucination of a machine.'

Accordingly, in cases where GST orders rely upon non-existent, irrelevant, or AI-generated fake precedents, it is strongly arguable that such orders are liable to be quashed for non-application of mind and breach of natural justice.

By: CA. Chitresh Gupta

Mobile: 99103 67918

https://www.linkedin.com/in/ca-chitresh-gupta-22795920/

(13) CA Chitresh Gupta (@CAChitreshGupta) / X

This article is intended for academic and professional discussion and reflects the legal position emerging from statutory interpretation and judicial precedents.