Skip to main content
NOPE
Medium reported severity Internal Action

Surat, India: a customs officer's ₹425 crore penalty order against a diamond trader relied on non-existent and misattributed case law that India's Supreme Court found 'appears to be a hallucination of AI'; the court set the order aside after the trader had lost in the Gujarat High Court

On 8 October 2025 the Additional Commissioner of Customs in Surat imposed a penalty of ₹425,27,99,100 (about ₹425 crore) on a diamond trader under Section 114 of the Customs Act, 1962, for allegedly misdeclaring a consignment of natural diamonds as lab-grown diamonds to pay a lower tariff. The trader's challenge was dismissed by the Gujarat High Court on 20 January 2026. Before the Supreme Court the trader argued that judgments and articles cited in the penalty order had been generated using artificial intelligence. On 2 September 2026 a bench of Justices Dipankar Datta and Sheel Nagu, after checking the material, found that the order relied on case law that was non-existent or carried fake citations, and on real cases that did not lay down the propositions attributed to them, which the court said 'appears to be a hallucination of AI'. Holding that the use of AI and reliance on this dubious material was fatal to the order, the court set aside both the penalty order and the High Court's order without deciding the merits, sent the matter for fresh adjudication by a different officer of the same rank, and left any action against the order's author to the appointing authority. The AI tool used is not named in the read reports.

AI system
Unidentified AI tool
Unknown
Occurred
8 Oct 2025 to 2 Sept 2026
Reported
2 September 2026
Event location
India
What the AI did
Relation unknown
Reported harm
Legal Harm
Whose AI use
An institution’s AI use
Setting
Justice · Public services · Finance
Evidence
AI involvement supported · Causal attribution supported · 4 sources, 1 underlying account
3 claims: 3 reported. 4 open questions
People reported harmed
1 person

AI system as recorded: Unnamed generative AI tool whose output the Supreme Court of India found in a customs penalty order (non-existent and misattributed case law); the tool is not identified in the read reports

What Happened

According to Bar & Bench, SCC Online and Upstox, which report the judgment, the penalty order was passed on 8 October 2025 by the Additional Commissioner of Customs, Surat, and imposed ₹425,27,99,100 under Section 114 of the Customs Act, 1962, on the allegation that natural diamonds had been declared as lab-grown to attract a lower tariff. The Gujarat High Court dismissed the trader's challenge on 20 January 2026. In the Supreme Court the trader contended that several judgments and articles relied upon in the order had been generated using AI. The bench said it had individually verified that contention and quoted its finding that the officer had 'relied upon case laws that are either non-existent or have fake citations', and that some existing cases did not lay down the ratio deduced from them, which 'appears to be a hallucination of AI'. The court held that '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', cited its earlier decision in Pooja Ramesh Singh v. Jammu & Kashmir Bank Ltd. calling for zero tolerance of unverified AI-generated precedents, and remarked that AI 'may well serve as training wheels but entrusting it with the pilot's seat would be both imprudent and dangerous.' The Ukrainian legal outlet Sudovo-yurydychna hazeta (sud.ua) reported the case on 6 September 2026, converting the penalty to about US$45 million. The reports do not say which AI tool was used, how the officer used it, whether the trader paid any part of the penalty, or what the trader's legal costs were. The judgment text itself was not read.

Reported harm

A diamond trader was subjected for about eleven months to a ₹425 crore customs penalty order, and lost a High Court challenge to it, before India's Supreme Court voided the order because it relied on non-existent and misattributed case law that the court found appeared to be AI hallucination (Supreme Court judgment as reported by Bar & Bench, SCC Online and Upstox). The underlying proceedings were revived.

Outcome

Ongoing

The Supreme Court of India allowed the trader's civil appeal on 2 September 2026, set aside the Order-in-Original of 8 October 2025 and the Gujarat High Court's order of 20 January 2026, and revived the customs proceedings for fresh adjudication by an officer of the same rank other than the original author. It left it to the appointing authority to consider action against that officer. The merits of the misdeclaration allegation were not decided.

What remains unknown

  • Which AI tool the customs officer used and how it was used in drafting the order.
  • Whether the trader paid any part of the penalty or incurred other financial consequences while the order stood, and the trader's litigation costs.
  • The outcome of the revived adjudication and whether any action was taken against the officer.
  • The trader's country and place of residence.

What the evidence supports

AI involvement: supported. The Supreme Court, after individually verifying the cited material, found non-existent cases, fake citations and misattributed ratios in the penalty order and said this 'appears to be a hallucination of AI'; it held that 'the use of AI in this case' was fatal to the order. The tool, and how the officer used it, are not stated in the read reports. The penalty decision was the officer's; whether the AI drafted or merely supplied authorities is unknown, so the AI-to-person relation is recorded as unknown.

3 claims: 3 reported. What the statuses mean

Reported On 8 October 2025 the Additional Commissioner of Customs, Surat, imposed a penalty of ₹425,27,99,100 on a diamond trader under Section 114 of the Customs Act, 1962, for allegedly misdeclaring natural diamonds as lab-grown diamonds, and the Gujarat High Court dismissed his challenge on 20 January 2026.

Causal attribution. Facts of the proceedings as recited in the Supreme Court judgment, reported by legal outlets; the judgment itself was not read.

  • scconline.com(opens in new tab) supports · English
    'The present appeal arose out of an Order-in-Original dated 8 October 2025 passed by the Additional Commissioner of Customs, Surat, imposing a penalty of ₹425,27,99,100 on the appellant under Section 114, Customs Act, 1962, for misdeclaring a consignment of natural diamonds as lab-grown diamonds to pay a lower tariff. The challenge to the said penalty before the Gujarat High Court failed, as the appeal was dismissed vide order dated 20 January 2026.'
  • barandbench.com(opens in new tab) supports · English
    'The penalty was imposed for allegedly misdeclaring a consignment of natural diamonds as lab-grown diamonds to attract a lower tariff.'; 'the High Court dismissed his challenge on January 20, 2026, prompting him to approach the Supreme Court.'
Reported The Supreme Court found that the penalty order relied on case law that was non-existent or carried fake citations, and on existing cases that did not lay down the ratio attributed to them, which it said appears to be a hallucination of AI.

Causal attribution. Finding of the Supreme Court after its own verification of the cited material, as quoted by the reports. The court attributes the defects to AI in qualified terms ('appears to be'); the tool is not named.

  • barandbench.com(opens in new tab) supports · English
    '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,' the Court observed.
  • upstox.com(opens in new tab) supports · English
    'Upon verification, the court found that the second respondent had "relied upon case laws that are either non-existent or have fake citations." It further found that some case laws which did exist did not lay down the legal propositions attributed to them, and that this "appears to be a hallucination of AI".'
Reported On 2 September 2026 the Supreme Court held that the use of AI and the resulting reliance on dubious material was fatal to the penalty order, set aside the order and the High Court's order without deciding the merits, revived the proceedings for fresh adjudication by a different officer of the same rank, and left action against the order's author to the appointing authority.

Causal attribution. Holding of the Supreme Court as reported.

  • barandbench.com(opens in new tab) supports · English
    '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,' the Court said.
  • scconline.com(opens in new tab) supports · English
    'The proceedings were revived for fresh adjudication by an officer of the same rank other than the officer who had passed the original order.'; 'The Court left it to the wisdom of the appointing authority to initiate such action against the author of the Order-in-Original dated 8 October 2025 as may be warranted in the circumstances, in accordance with law.'
  • upstox.com(opens in new tab) supports · English
    'The Supreme Court on Wednesday, September 2, 2026, set aside a customs penalty of over ₹425 crore'; 'A bench of Justice Dipankar Dutta and Justice Sheel Nagu did not examine the merits of the customs case at all.'
  • sud.ua(opens in new tab) context · Ukrainian
    'Верховний суд Індії 2 вересня 2026 року розглянув справу щодо використання штучного інтелекту працівником митниці, який послався на неіснуючі судові справи та фальшиві цитати, накладаючи штраф у розмірі близько $45 млн' (the Supreme Court of India on 2 September 2026 considered a case of a customs officer's use of AI, who cited non-existent cases and fake quotations while imposing a fine of about $45 million)

Sources

4 sources inspected, from 1 underlying account. Sources that repeat one account do not corroborate each other.

How the sources were read, and where the events happened

Full body (including JSON-LD article body) read by curl on 2026-09-29. Reports and quotes the Supreme Court judgment of 2 September 2026. Applies to s1.

SCC Times case note, read by curl on 2026-09-29; summarises the same judgment (2026 SCC OnLine SC 1741). Applies to s2.

Upstox (4 September 2026), read by curl on 2026-09-29; based on the same judgment. Applies to s3.

Ukrainian-language report (6 September 2026) read through the r.jina.ai relay on 2026-09-29 (direct fetch 403); translated by the reviewer. Cited only for context; it converts the penalty to about US$45 million. Applies to s4.

Event countries: India. Affected-person countries: Unknown. Court countries: India.

The order was passed by the Additional Commissioner of Customs, Surat, challenged in the Gujarat High Court and decided by the Supreme Court of India. The trader's country of residence is not stated in the read reports, so affected_person_countries is left empty.

Reviewed for publication 2026-09-29: Published as a concrete case of institutional AI use in an adverse administrative decision about a person: a penalty order that India's Supreme Court voided after finding apparently AI-hallucinated authorities in it. The account rests on legal reporting of the judgment; the judgment text was not read. The underlying misdeclaration allegation was not decided and the proceedings were revived. The trader is not named.

People described

A diamond trader (not named here) penalised by the Surat customs authority

People reported harmed in this case

1 person

0 AI participants · 1 other person harmed

One trader, the appellant, on whom the penalty was imposed. The trader did not use the AI; the customs officer did. No other person is reported harmed.

Counted once within this case. The same person may appear in other cases. This count does not establish AI causation.

Tags

#india#surat#customs#supreme-court#hallucinated-citations#administrative-decision#penalty

Cite this case

Compiled per our published methodology: verification statuses, sourcing standards, and corrections process.

APA

NOPE. (2026). Surat, India: a customs officer's ₹425 crore penalty order against a diamond trader relied on non-existent and misattributed case law that India's Supreme Court found 'appears to be a hallucination of AI'; the court set the order aside after the trader had lost in the Gujarat High Court. AI incidents. https://nope.net/incidents/2026-surat-customs-penalty-ai-hallucinated-citations-supreme-court

BibTeX

@misc{2026_surat_customs_penalty_ai_hallucinated_citations_supreme_court,
  title = {Surat, India: a customs officer's ₹425 crore penalty order against a diamond trader relied on non-existent and misattributed case law that India's Supreme Court found 'appears to be a hallucination of AI'; the court set the order aside after the trader had lost in the Gujarat High Court},
  author = {NOPE},
  year = {2026},
  howpublished = {AI incidents},
  url = {https://nope.net/incidents/2026-surat-customs-penalty-ai-hallucinated-citations-supreme-court}
}

Related cases

Low Unidentified AI tool

Rennes administrative court fines a claimant 500 euros for an abusive tax appeal it found manifestly written with an AI tool and too imprecise to assess

According to Gossement Avocats, which quotes the order, and the court's vice-president on France Inter, an order of 19 August 2026 (n°2508168) of the tribunal administratif de Rennes rejected a claimant’s application contesting a VAT reassessment and fined the claimant 500 euros for an abusive application. As quoted by Gossement Avocats, the order says the application had manifestly been written with an artificial intelligence tool and that its grounds lacked the most elementary details needed to assess them. The court also found it inadmissible because no prior complaint to the tax service was shown, and noted that it repeated a request with substantially the same object rejected in October 2025. The court’s vice-president cited the case on France Inter; commentators stress that AI use alone was not the basis for the fine.

Medium Unidentified facial recognition system

Delhi: the police facial-recognition system logged at least 25 people who were in Tihar, Mandoli or Rohini jails as present at the Jantar Mantar student protests (20 to 26 July 2026), with timestamps on 24 to 26 July, on a sworn list of 2,873 persons with 'criminal antecedents' that the Supreme Court allowed police to register a fresh FIR against (Indian Express investigation, 4 September 2026)

In an affidavit of 17 August 2026 before the Supreme Court of India, Delhi Police said its Facial Recognition System (FRS) had identified 2,873 people with criminal antecedents at the Jantar Mantar protests of 20 to 26 July 2026 (2,402 through its 'Crime Kundli' biometric database and 471 through other criminal records). On 1 September the Court quashed the FIRs against the student protesters but let the police proceed against the 2,873; the police say any action will follow field verification. The Indian Express checked the 205 listed people facing murder, attempted-murder, rape or child-sexual-offence charges against police, prison and court records and found that at least 25 of them (17 accused of murder, four of rape (two or three under POCSO; the Express's narrative and its list differ), four of attempted murder) were lodged in Delhi's Tihar, Mandoli or Rohini prisons when the system logged them at the protest site with timestamps on 24, 25 and 26 July; some had been in custody for years. Delhi Police told the newspaper that further verification of the 2,873 was pending and, in its affidavit, that no action is taken solely on a facial-recognition result and that field verification follows each match. The police disclosed in 2022, in reply to a Right to Information request, that it treats a match with an 80 per cent similarity score as positive. Whether any of the 25 has since been named in the fresh FIR or visited for verification is not reported.

High Unidentified AI tool

SDT strikes solicitor Abhishek Kumar off the Register of Foreign Lawyers after AI-generated false citations in his SRA defence

On 25 August 2026 the Solicitors Disciplinary Tribunal struck Abhishek Kumar off the Register of Foreign Lawyers after finding proved that his 12 March 2026 Answer to the SRA's Rule 12 Statement contained misleading quotations and citations produced with generative AI — including a non-existent 'SRA v Chan [2020] EWHC 1502' and a miscited 'SRA v James, MacGregor & Naylor [2018] EWCA Civ 1420' that is actually an intellectual-property case — and that his 9 April 2026 email admitting AI use was itself AI-drafted with further errors. The tribunal said it would have struck him off on that allegation alone; the parallel ground was his January 2024 conviction under s.21 of the Immigration, Asylum and Nationality Act 2006. This is the SDT's first case on a lawyer's use of AI, per the SRA's counsel.

Medium Unidentified video tool

Miami: scammers cloned immigration attorney Ángel Leal's face and voice with AI to defraud immigrants seeking legal help

From around October 2025, criminals used AI to clone the image, voice, name, signature and firm logo of Ángel Leal, a long-established immigration attorney in Doral, Florida. They created fake videos, look-alike websites, forged contracts and even fabricated Zoom 'immigration hearings' to persuade immigrants to pay for legal services Leal never provided. Immigrants were defrauded of money, and some believed their cases were progressing when they were not; Leal received one to two defrauded callers a day, changed his phone number, hired an anti-piracy firm that removed thousands of fake profiles and videos, and reported the fraud to local police and federal authorities.

If you or someone you know is struggling, free and confidential support is available. Find a helpline near you at Signpost.

Back to all incidents