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The Supreme Court has set aside a massive ₹425.27 crore customs penalty after finding that an adjudicating authority had relied on case laws that were either non-existent, carried fake citations, or did not support the legal propositions attributed to them.
A Bench of Justice Dipankar Datta and Justice Sheel Nagu passed the order on September 2, 2026, in the case of Vijay Ghanshyam Gadiya v. Union of India & Anr.
Background of the Case
The matter arose from an Order-in-Original dated October 8, 2025, passed by the Additional Commissioner of Customs, Surat. The authority had imposed a penalty of ₹425,27,99,100 on Vijay Ghanshyam Gadiya under Section 114 of the Customs Act, 1962.
The proceedings concerned a consignment of natural diamonds which, according to the customs order, had been declared as lab-grown diamonds for payment of a lower tariff. Gadiya challenged the penalty before the Gujarat High Court, but the challenge was dismissed on January 20, 2026. He then approached the Supreme Court.
Supreme Court Examines AI-Generated Citations
The Supreme Court noted that Gadiya’s counsel had argued that several judgments and articles cited in the customs authority’s order were generated using Artificial Intelligence.
The Bench said it independently checked the cited material. It found that some cases relied upon were non-existent or had fake citations, while certain cases that did exist did not actually establish the legal principles attributed to them. The Court described this as appearing to be an “hallucination of AI.”
Referring to its recent decision in Pooja Ramesh Singh v. Jammu & Kashmir Bank Ltd., the Court reiterated that AI-generated legal material must be independently verified before being relied upon as precedent.
Court’s Warning on AI in Adjudication
The Bench also addressed the broader use of AI in legal decision-making. It acknowledged that AI could assist adjudicatory processes, particularly in speeding up decision-making, but stressed that technology cannot replace judicial or quasi-judicial reasoning.
“assistance can never be substituted for adjudication.”
The Court further cautioned that AI may act as “training wheels”, but “entrusting it with the pilot’s seat would be both imprudent and dangerous.”
Decision
The Supreme Court held that reliance on the dubious material was fatal to the sustainability of the penalty order. It therefore set aside both the Gujarat High Court’s order and the October 8, 2025 Order-in-Original.
The proceedings against Gadiya were revived and directed to be decided afresh by an officer of the same rank, but not the officer who had passed the earlier order. The civil appeal was accordingly allowed.
The Court also left it to the appointing authority to consider, in accordance with law, whether any action was warranted against the author of the original order.
Case Details
Case Title: Vijay Ghanshyam Gadiya v. Union of India & Anr.
Case Number: Civil Appeal No. of 2026, arising out of SLP (Civil) No. 15605 of 2026
Judge: Justice Dipankar Datta and Justice Sheel Nagu
Decision Date: September 2, 2026
