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Informist, Thursday, Sept. 3, 2026

 

NEW DELHI – The Supreme Court has set aside INR-4.25-billion penalty against Vijay Ghanshyam Gadiya as the customs department relied upon case laws that were either non-existent or had fake citations generated using artificial intelligence. Some of the case laws relied upon by the customs department, which do exist, do not lay down the ratio deduced therefrom and it appears to be a "hallucination of artificial intelligence," said the apex court.

 

The use of artificial intelligence in this case, resulting in reliance placed by the customs department on material which is dubious, proves fatal to the sustainability of the order imposing a penalty on Gadiya, said the Bench of Justice Dipankar Datta and Justice Sheel Nagu. Such circumstances compel the court to interfere and remand the case back, it said. 

 

The Gujarat High Court's order confirming the penalty is consequently set aside together with the customs department's order, with the result that the proceedings against Gadiya before the customs shall stand revived for being decided afresh by an officer of the same rank other than the one who passed the previous order, said the top court. "We leave it to the wisdom of the appointing authority to initiate such action against the author (officer that passed the previous order) of the order dated Oct. 8, 2025, as may be warranted in the circumstances, in accordance with law," said the apex court.

 

The use of artificial intelligence in the process of adjudication is not foreign, said the apex court. Quite to the contrary, the apex court has recently released draft regulations for use of artificial intelligence in courts, 2026, seeking comments and suggestions, it said. Notwithstanding that the regulations are yet to be finalised, the use of artificial intelligence as an assistive tool to speed up the decision-making process cannot be denied, it said. However, a note of caution must be sounded: assistance can never be substituted for adjudication, it said. Artificial intelligence may well serve as training wheels but entrusting it with the pilot's seat would be both imprudent and dangerous, it added.

 

The case has its genesis from the additional commissioner of customs, Surat passing an order on Oct. 8, 2025 imposing a penalty of INR 4.25 billion against Gadiya, under Section 114 of the Customs Act, 1962, for misdeclaring a consignment of natural diamonds as lab-grown diamonds to pay a lower tariff. The challenge to the penalty by Gadiya before the high court failed after his appeal stood dismissed by an order in January. Challenging the high court's order, Gadiya moved the apex court. The petitioner said that several judgments and articles cited by the customs department in its order were generated using artificial intelligence. Thereafter, the court verified whether such contention of the appellant was true.  End 

 

Reported by Surya Tripathi

Edited by Akul Nishant Akhoury

 

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