AI use in drafting GST show cause notice held invalid: Key ruling of Punjab & Haryana High Court

The Punjab and Haryana High Court, in SRO India Vs State of Punjab And Another, has delivered a significant ruling on the extent to which technology—particularly Artificial Intelligence (AI)—can be used in quasi-judicial functions under the GST framework. The Court set aside a DRC-01A show cause notice dated 02.02.2025, on the ground that the notice was substantially generated with the aid of an AI tool, without proper independent application of mind by the competent authority, as required under the statute.

This decision squarely addresses whether an assessing authority can rely on AI to prepare and issue a show cause notice and clarifies that such reliance, in the absence of statutory authorization and independent judgment, is impermissible.

Background of the writ petition

Origin of the dispute

The assessee, SRO India, filed a writ petition before the Punjab and Haryana High Court challenging a Show Cause Notice (DRC-01A) dated 02.02.2025 (Annexure P‑5). The primary challenge was not on the merits of the alleged GST demand, but on the manner in which the notice itself had been generated and issued.

The assessee contended that:

  • The concerned officer had not personally examined the case facts; and
  • The notice had been drafted and structured by an AI tool, indicating absence of genuine, independent application of mind.

A key piece of evidence was a document annexed to the show cause notice and also uploaded on the GST portal along with it. This document explicitly referred to AI-based aids and suggestions which extended beyond mere formatting or clerical assistance.

The annexure included AI-generated prompts about how to enhance the eventual order, including:

“Optional Enhancement (for Order-in-Original)
If you want, I can:
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.
Just say “add OIO version” or “make it lethal”
Enhanced Verification Findings on Non-Movement of Goods (Vehicle-wise Analysis).”

These lines indicated that the AI tool was not merely providing general language suggestions, but was actively proposing legal strategy, reasoning, and even adversarial framing intended to make the order “lethal” or “defence-proof.”

Assessee’s core arguments before the High Court

The learned counsel appearing for the assessee put forth the following submissions:

  1. AI-driven preparation of notice

    • The Show Cause Notice had, in substance, been prepared using an AI tool.
    • The suggestions and prompts attached to the notice demonstrated an AI-driven template or “drafting engine” rather than a human officer’s legal reasoning.

  2. Lack of independent application of mind

    • Under the GST law, the competent authority is required to examine the specific facts, consider the assessee’s position, and consciously form a prima facie view before issuing a show cause notice.
    • The presence of an AI-generated enhancement note showed that the officer had abdicated this statutory responsibility.

  3. Statutory scheme does not authorize AI-based adjudication inputs

    • The GST legislation mandates that quasi-judicial actions be undertaken by designated officers exercising their own discretion and judgment.
    • There is no enabling provision that allows the substitution of such discretion with automated tools or AI-based systems, especially in core adjudicatory steps such as issuance of show cause notices.

On this basis, it was argued that the impugned DRC-01A was void and liable to be quashed.