Facts
The Additional Commissioner of Customs, Surat imposed a penalty of ₹425,27,99,100/- under S.114 of the Customs Act, 1962 on the appellant for allegedly mis-declaring natural diamonds as lab-grown diamonds to pay a lower tariff.
The Gujarat High Court dismissed the appellant’s challenge to the penalty.
Before the Supreme Court, the appellant contended that several judgments and articles relied upon in the Order-in-Original dated 8 October 2025 had been generated using Artificial Intelligence (AI).
The Supreme Court independently verified the cited material and found that some case laws were non-existent or carried fake citations, while some existing authorities did not lay down the propositions attributed to them and appeared to be AI hallucinations.
Issues
Whether an adjudicatory order relying upon non-existent, falsely cited, or AI-hallucinated judicial authorities can be sustained.
The Court also considered the permissible role of AI in adjudicatory processes.
Court’s Reasoning
(a) Verification of authorities is essential:
The Court individually verified the judgments and articles relied upon by the adjudicating authority. It found that some authorities were non-existent or had fake citations, while others did not support the propositions attributed to them.
The Court relied upon Pooja Ramesh Singh v. Jammu & Kashmir Bank Ltd., which had adopted a “zero-tolerance mode” towards producing, citing or using AI-generated precedents without verification.
(b) Effect on adjudication:
The Court held that reliance upon fake or hallucinated material compromises the integrity of the adjudicatory process. Even an “iota of fake or hallucinated material” entering the decision-making process is sufficient to vitiate the decision.
(c) Proper role of AI:
The Court recognised that AI may be used as an assistive tool to speed up decision-making. However, it cautioned that “assistance can never be substituted for adjudication.” AI may assist the adjudicator, but responsibility for verification and adjudication remains with the human decision-maker.
(d) Consequence in the present case:
The Court held that the use of AI resulting in reliance upon dubious material was fatal to the penalty order. The Order-in-Original and the High Court judgment were therefore set aside, and the matter was remanded for fresh adjudication by an officer of the same rank but different from the officer who had passed the original order.
Held
The civil appeal was allowed. The High Court's order confirming the penalty and the Order-in-Original were set aside. The proceedings were revived for fresh decision by an officer of the same rank other than the original adjudicating officer.
The Court left it to the appointing authority to consider whether action against the author of the original order was warranted.
Conclusion
AI may be used as an assistive tool in adjudication, but reliance on unverified fake or hallucinated judicial material vitiates the adjudicatory decision.
Relevant Para
6. However, a note of caution must be sounded: assistance can never be substituted for adjudication. AI may well serve as training wheels but entrusting it with the pilot’s seat would be both imprudent and dangerous
Case Details
Citation: 2026 INSC 947
Decided on: 2 September 2026
Case Title: Vijay Ghanshyam Gadiya v. Union of India & Anr.
Court: Supreme Court of India
Bench: Dipankar Datta, J.; Sheel Nagu, J.