Vijay Ghanshyam Gadiya Vs Union of India & Anr. (Supreme Court of India)
Summary: The Supreme Court considered a challenge to a customs penalty of Rs. 425,27,99,100/- imposed on Vijay Ghanshyam Gadiya by the Additional Commissioner of Customs, Surat under Section 114 of the Customs Act, 1962. The penalty arose from an allegation that a consignment of natural diamonds had been mis-declared as lab-grown diamonds to pay a lower tariff.
The Order-in-Original dated 08.10.2025 was challenged before the Gujarat High Court, but the challenge failed when the High Court dismissed the appeal on 20.01.2026. The matter then reached the Supreme Court.
The Supreme Court did not enter into the merits of the underlying customs dispute. Instead, the appellant contended that several judgments and articles relied upon by the second respondent in the Order-in-Original had been generated using Artificial Intelligence.
The Court independently verified the material relied upon in the customs order and found that the second respondent had relied upon case laws that were either non-existent or had fake citations. The Court further found that some case laws which did exist did not lay down the legal propositions attributed to them. The Court observed that the material appeared to be a hallucination of AI.
This discovery led the Supreme Court to rely upon its recent decision in Pooja Ramesh Singh Vs Jammu & Kashmir Bank Ltd., where the Court had adopted a zero-tolerance approach towards producing, citing or relying upon artificial-intelligence-generated precedents without verification. The Supreme Court reiterated that presenting or relying upon fake or hallucinated material as a court precedent undermines the integrity of adjudication.
The Court also made broader observations concerning the use of Artificial Intelligence in adjudicatory processes. It noted that the Supreme Court had recently released draft Regulations for Use of Artificial Intelligence in Courts, 2026, inviting comments and suggestions. Although those regulations had not yet been finalised, the Court acknowledged that AI could be used as an assistive tool to speed up decision-making processes. However, it emphatically distinguished assistance from adjudication, observing that AI may serve as “training wheels” but cannot be entrusted with the “pilot’s seat”.
Applying these principles to the case, the Supreme Court held that the use of AI had resulted in reliance by the second respondent on dubious material and that this was fatal to the sustainability of the penalty order. The Court therefore found it necessary to interfere without determining the substantive merits of the customs dispute.
The Supreme Court consequently set aside the Gujarat High Court order confirming the penalty as well as the Order-in-Original dated 08.10.2025. The proceedings against the appellant before the second respondent were revived for fresh adjudication by an officer of the same rank other than the officer who had passed the original order.
The civil appeal was allowed. The Court also disposed of any pending applications and left it to the wisdom of the appointing authority to initiate such action against the author of the Order-in-Original dated 08.10.2025 as may be warranted in accordance with law.
Cases Discussed
- Pooja Ramesh Singh Vs Jammu & Kashmir Bank Ltd. — 2026 SCC OnLine SC 1258
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Leave granted.
2. The Additional Commissioner of Customs, Surat1 passed an Order-in-Original dated 8th October, 2025 imposing a penalty of Rs. 425,27,99,100/- on the appellant, under Section 114 of the Customs Act, 1962, for mis-declaring a consignment of natural diamonds as lab-grown diamonds to pay a lower tariff. The challenge laid to the said penalty by the appellant before the High Court of Gujarat2 failed, as his appeal stood dismissed vide order dated 20th January, 2026. This order of High Court is impugned before us.
3. Entering into the merits of the challenge is unnecessary, since it has been contended on behalf of the appellant that several judgments and articles cited by the second respondent in the Order-in-Original dated 8th October, 2025 are generated using Artificial Intelligence3.
4. We have made the effort to individually verify whether such contention of the appellant is true. Upon verifying such judgments and articles, it does appear that the second respondent has relied upon case laws that are either non-existent or have fake citations. A further investigation has also revealed that some of the case laws relied upon by the second respondent, which do exist, do not lay down the ratio deduced therefrom and it appears to be a hallucination of AI.
5. Such a discovery compels us to refer to the decision of this Court in Pooja Ramesh Singh v. Jammu & Kashmir Bank Ltd.4. It happens to be a precedent dealing with the use of AI in judgments. Excerpts therefrom read:
7. It is necessary for courts to adopt a zero-tolerance mode for producing, citing or using artificial intelligence-generated precedents without verification. It is a misconduct on the part of an advocate to cite such judgments without verification. Equally, it is a serious lapse if a judge relies on such a fake or hallucinated artificial intelligence-generated material as precedents in support of the determination. We have no hesitation in declaring that such a decision is no decision in the eyes of the law, irrespective of whether such material had a direct or indirect bearing on the decision-making. Such decisions are to be set aside even if an iota of fake or hallucinated material enters the decision-making process, as it would violate the sanctity of adjudication. It is absolutely necessary to maintain integrity in decision making, and we reiterate and declare zero tolerance for the Bar as well as the Bench to cite, refer to, or rely on such material. It is also clarified that our judgment shall have no bearing on the rightful use of artificial intelligence, but on the presentation or reliance on fake or hallucinated material as if it were a court precedent.
6. At this juncture, we may also add a comment on the use of Artificial Intelligence in adjudicatory processes. While this issue incidentally falls upon us to be considered, use of AI in the process of adjudication is not foreign. Quite the contrary, this Court has recently released draft Regulations for Use of Artificial Intelligence in Courts, 2026, calling for comments and suggestions. Notwithstanding that the regulations are yet to be finalised, use of AI as an assistive tool to speed up the decision-making process cannot be denied. 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.
7. The use of AI in this case, resulting in reliance placed by the second respondent on material which is dubious, proves fatal to the sustainability of the order imposing penalty on the appellant. Such circumstances compel us to interfere and remand the case. Learned Additional Solicitor General has not joined issue.
8. For the foregoing reasons, the impugned order of the High Court confirming the penalty is consequently set aside together with the Order-in-Original, with the result that the proceedings against the appellant before the second respondent shall stand revived for being decided afresh by an officer of the same rank other than the one who passed the order dated 8th October, 2025.
9. The civil appeal stands allowed.
10. Pending application(s), if any, stand disposed of.
11. We leave it to the wisdom of the appointing authority to initiate such action against the author of the order dated 8th October, 2025, as may be warranted in the circumstances, in accordance with law.
Notes:
1 second respondent
2 High Court
3 AI
4 2026 SCC OnLine SC 1258
