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Reported The Invented Source Costly
India's Supreme Court scraps a ₹425 crore customs penalty built on AI-invented case law
India's Supreme Court has thrown out a ₹425 crore customs penalty because the officer's order relied on case law that appears to have been made up by AI. The case now starts again before a different officer, and the trader has not been cleared. Builders: any tool that drafts legal or official text should show where each citation comes from so a person can check it. Readers: if an official decision against you cites cases, it is fair to ask for each one to be checked.
When any official decision cites case law, check that each authority exists and says what it is cited for before the order is signed. Fluent, real-looking citations are exactly what gets past an appeal unchecked.
A customs officer in India fined a diamond trader more than ₹425 crore. The order leaned on court cases that India's Supreme Court later said did not exist, or did not say what the officer claimed. On 2 September 2026, the Court threw the penalty out.
It started with an order dated 8 October 2025. An Additional Commissioner of Customs in Surat fined trader Vijay Ghanshyam Gadiya Rs 425,27,99,100, about ₹425.28 crore. The officer said Gadiya had declared natural diamonds as lab-grown ones to pay a lower tariff. Gadiya appealed. The Gujarat High Court turned him down on 20 January 2026.
At the Supreme Court, Gadiya's side argued that several judgments and articles cited in the customs order had been generated using AI. Justices Dipankar Datta and Sheel Nagu decided to check. In their order, they say they made "the effort to individually verify" the citations.
What they found was not good. Some of the case law was "either non-existent or have fake citations". Other cases were real, but did not support the legal point the officer drew from them. That, the judges wrote, "appears to be a hallucination of AI". A hallucination is when an AI tool produces something that sounds right but is false.
The Court did not name any AI tool. Its order does not say who used one, or how. It does not say the officer admitted anything.
The judges said relying on that "dubious" material was "fatal" to the penalty. The government's lawyer did not contest the point. The Court set aside both the High Court ruling and the customs order. Bar & Bench reported the ruling the same day.
That does not clear the trader. The Court did not decide whether the diamonds were misdeclared. It sent the case back to be decided again by a different officer of the same rank, so a new penalty is still possible. The penalty now has to be decided again, nearly a year after the first order. The Court also left it to the officer's appointing authority to consider "such action" against the order's author "as may be warranted". The judgment does not name that officer.
The judges pointed to an earlier 2026 ruling, Pooja Ramesh Singh v. Jammu & Kashmir Bank Ltd. It set a "zero-tolerance" line on relying on AI-made precedents without checking them. It said a decision built on such material is "no decision in the eyes of the law". This time the Court added a warning: AI "may well serve as training wheels but entrusting it with the pilot's seat would be both imprudent and dangerous."
Made-up case law has turned up before. In the US, a federal court fined a lawyer over it, as we covered in EDNY sanctions counsel $1,000 for AI-assisted nonexistent case citations in Ramirez v. Humala. The difference here is where the fake authority landed. It was not in a lawyer's filing. It was in a government decision with a huge sum at stake, and it stood through one appeal before the Supreme Court checked.
The pattern is the invented source. Citations that look real are easy to trust and easy to wave through. Checking that each case exists, and says what it is cited for, is still a human job.
What to sit with
An AI-made citation can sink a big decision, so check every case before you rely on it.
Worth arguing about
- Should officials who decide penalties face the same AI rules as judges?
- Who should carry the blame when an officer relies on AI-made authority?
What’s at stake
- Fake or misused case law ended up inside a government penalty order worth more than ₹425 crore.
- It stood through one appeal before the Supreme Court checked the citations itself.
What this gets right
- The Court checked each citation by hand instead of taking anyone's word for it.
- The case goes back to a different officer, who must decide it afresh.
What stays messy
- The penalty has to be decided again, nearly a year after the first order.
- The trader is not cleared, and a new penalty is still possible.
Easy to miss
- The Court did not name the AI tool, or say who used it.
- We don't know if the earlier appeal ever looked at the citations.
One thing to try What if every official decision had to list where each cited case can be read, so anyone could check it in minutes?