Ms J.M. Jain Prop. Sh. Jeetmal Choraria v. Union of India & Ors., W.P.(C) 16754/2025 (Delhi High Court)

I. Introduction

On 18 November 2025, a Division Bench of the Delhi High Court (Justices Prathiba M. Singh and Shail Jain) delivered a significant judgment in Ms J.M. Jain Prop. Sh. Jeetmal Choraria v. Union of India & Ors., W.P.(C) 16754/2025 (decided 18-11-2025). The petitioner sought quashing of a Show Cause Notice (“SCN”) issued under Section 74 of the Central Goods and Services Tax Act, 2017 (“CGST Act”).

The Court refused to interfere at the pre-adjudication stage, holding that the SCN was detailed, supported by documentary material, and that the petitioner must respond to statutory proceedings rather than invoke writ jurisdiction prematurely.

However, the judgment is notable for two broader legal issues:

1. Whether material seized under the Income Tax Act, 1961 can be used in GST proceedings, and

2. A judicial warning against reliance on AI-generated or unverified case law by government authorities.

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II. Factual Background

The Income Tax Department conducted a search on 28 May 2022 at the petitioner’s premises. The search purportedly revealed:

• A concealed digital server (“JSK Server”) containing parallel accounts;

• Evidence of two accounting systems (“Pakka” and “Kachcha”);

• Cash-based transactions not reflected in statutory books;

• WhatsApp communications, handwritten slips, and digital ledgers;

• Statements of employees referring to unrecorded commissions and interest income.

Pursuant to inter-departmental information sharing, the Directorate General of GST Intelligence (DGGI) independently scrutinised the material and issued an SCN proposing tax and penalty for alleged suppression of taxable supplies.

The petitioner challenged the SCN and, additionally, sought a declaration that Section 75(2) of the CGST Act was unconstitutional.

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III. Arguments of the Petitioner

The petitioner advanced three principal submissions:

1. Presumptions under Sections 132(4A) and 292C of the Income Tax Act cannot be imported into GST law.
   The petitioner relied on P.R. Metrani v. CIT (2007) 1 SCC 789, which holds that Section 132(4A) presumption is limited to search and seizure proceedings under the IT Act.

2. Statements recorded under Section 132(4) of the IT Act can be used only in income-tax proceedings, not in GST adjudication.

3. The SCN was vague and relied on non-existent judicial precedents, including alleged AI-generated case citations.

The petitioner also relied on the Supreme Court’s decision in SLP (C) No. 6092 of 2025, Armour Security (India) Ltd. v. Commissioner, CGST (2025), where standards for valid SCNs were emphasised.

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IV. Arguments of the Respondents

The GST authorities submitted:

• The DGGI had undertaken an independent evaluation of all documents, statements, digital records and special audit reports.

• The core facts—i.e., alleged clandestine services and unreported commissions—had GST implications independent of income-tax issues.

• The challenge to Section 75(2) of the CGST Act was premature, as the SCN was issued under Section 74.

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V. Findings of the Court

1. Presumptions under Sections 132(4A) & 292C do not automatically apply to GST proceedings

Relying centrally on P.R. Metrani (2007) 1 SCC 789, the Court reiterated:

• The statutory presumption under Section 132(4A) is rebuttable.

• Such presumptions apply only to proceedings under the Income Tax Act unless specifically legislated otherwise.

• Material seized under a tax statute may still be used as factual inputs for investigation under another statute, even if the statutory presumptions themselves do not carry forward.

The Court held:

“While the prima facie presumption as existing under the IT Act would not apply under the CGST Act, the assets and material seized could form the basis of an independent investigation by the GST Department.” (¶61–63)

2. The GST Department conducted independent analysis

The Court rejected the contention that GST authorities had merely copied the Income Tax findings:

“The GST Department has independently scrutinised the records received… Before issuing the SCN, the GST Department analysed the documents, material, statements etc. and came to its own conclusions.” (¶60)

3. The SCN was neither vague nor unsupported

Citing Armour Security (India) Ltd., the Court noted that a valid SCN must:

• Contain clear allegations,

• Disclose relied-upon documents, and

• Provide statutory grounds for proposed demand.

The Court found that the 39-page SCN met these standards, and all RUDs had been supplied (¶66).

4. Severe warning against AI-generated or unverified case law

This judgment devotes considerable attention to the GST Department citing case law that—upon verification—did not exist.

The Court stated:

“There are discrepancies in the judgments cited… Government Departments must exercise utmost caution while citing judicial precedents, especially if generated by using Artificial Intelligence software.” (¶70–73)

The Bench referenced prior warnings including:

• KMG Wires Pvt. Ltd. v. National Faceless Assessment Centre, Bombay HC (2025),

• Christian Louboutin SAS v. The Shoe Boutique, Delhi HC (2023),
  both cautioning against AI hallucinations and fake case law.

5. Challenge to constitutionality of Section 75(2) was premature

Since Section 75(2) had not yet been invoked, the Court refused to decide hypothetical constitutional questions (¶74).

6. Writ petition dismissed as premature

The Court noted that this was the petitioner’s second attempt to pre-empt statutory proceedings.

The earlier writ and the subsequent SLP had already been dismissed.
The petitioner was directed to respond to the SCN and seek a personal hearing (¶75–80).

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VI. Commentary: Legal and Institutional Implications

A. Cross-Statute Use of Evidence

This judgment clarifies a recurring issue in Indian tax enforcement:
Can material seized under one tax regime be used in another?

The Court adopts a balanced approach:

• Permissible: Cross-departmental sharing and factual reliance.

• Not permissible: Automatic importation of statutory presumptions.

This aligns with jurisprudence distinguishing evidentiary use from statutory presumption.

Practically, this strengthens the DGGI’s ability to rely on material seized by the Income Tax Department, so long as it undertakes independent application of mind.

B. Strengthening Standards for Show Cause Notices

By affirming the standards laid down in Armour Security, the Court reinforces:

• Transparent allegations

• Full disclosure of RUDs

• Clearly articulated legal provisions

• No fishing or roving inquiries

This continues the courts’ trend of requiring SCNs to resemble quasi-judicial pleadings, not bureaucratic templates.

C. A Judiciary-Led Framework for Responsible Use of Artificial Intelligence

Perhaps the most forward-looking aspect of the judgment is its candid acknowledgment of AI hallucination risks.

The Court’s directive is unequivocal:

• Government authorities must verify all case law.

• AI tools can support analysis, but cannot replace human verification.

• Responsibility for accuracy lies with the issuing authority, not the software.

This case will likely serve as a touchstone for future debates on the reliability of AI tools in legal and administrative work.

D. Judicial Restraint and Statutory Discipline

The Court’s refusal to quash the SCN underscores standard principles:

• High Courts intervene only when SCNs are patently without jurisdiction or wholly vague.

• Taxpayers must exhaust statutory remedies unless there is a clear violation of natural justice.

This maintains coherence in administrative law and prevents premature constitutional litigation.

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VII. Conclusion

The Delhi High Court’s judgment in Ms J.M. Jain is significant not merely for its outcome, but for its broader doctrinal clarifications. It:

1. Reaffirms limits on importing presumptions from one tax regime to another;

2. Endorses cross-statute reliance on investigative material subject to independent scrutiny;

3. Strengthens jurisprudence on the structure and legality of Show Cause Notices;

4. Issues a timely warning against the uncritical use of AI in legal processes.

As tax authorities increasingly rely on digital forensics, inter-agency data, and AI-enabled tools, this judgment offers a roadmap for lawful, responsible, and constitutionally sound tax enforcement.