Supreme Court declares National Tax Tribunal Act as unconstitutional [Read the Constitution Bench Judgment]

The Constitution Bench of the Supreme Court today delivered a landmark judgment and declared the National Tax Tribunal Act as unconstitutional.

The Constitution Bench consisting of Chief Justice of India RM Lodha, Justice Khehar, Justice Chelameswar, Justice AK Sikri ruled that Sections 5, 6, 7, 8 and 13 of the National Tax Tribunal Act are unconstitutional. The Bench also had Justice RF Nariman, who in a separate concurring opinion declared the law unconstitutional. Justice Nariman ruled the law to be unconstitutional on two grounds, first, on separation of powers between judiciary and executive and the other point being of judicial independence.

The majority on the Bench opined that Parliament could not take away the power of a court and vest the power in something that is not a court by nature.

The provisions of the Act that have were pronounced unconstitutional formed the backbone of the Act, without which the National Tax Tribunal Act cannot stand. Justice Khehar authored the majority opinion and the judgment reads, ""entire enactment is declared unconstitutional".

Madras Bar Association along with others had filed the petition regarding the issue and they had challenged the Tribunal's power to decide 'substantial question of law'. It was also contended that the legislation violates the basic structure of the Constitution of Indiaby impinging on the power of ―judicial review vested in the High Court.

The petitioners had also contented that"the  NTT  in  the  manner  of  its  constitution undermines a process of  independence and fairness, which are  sine qua non  of an adjudicatory authority."

In the 270-page judgment, the Court then went through the history of tax legislations in India. The Court also discussed the facts leading to the legislation, which included reports by several committees.

The judgment also mentions the four issues put forward by the Petitioners, these were

"1. That the reasons for setting up the NTT, were fallacious and non-existent.Since the foundational basis is untrue, the structure erected thereupon, cannot be accepted as valid and justified. And therefore, the same is liable to be struck down.

2. It is impermissible for the  legislature to abrogate/divest the  core  judicial  appellate  functions,  specially  the  functions  traditionally  vested with  the  High  Court.

3. Separation of powers, the rule of law, and judicial review, constitute amongst others, the basic structure of the  Constitution. Article 323B inserted by the Constitution (Forty-second Amendment) Act, 1976, to the extent it is  violative  of  the  above  mentioned  components  of  the  basic  structure  of  the Constitution, is liable to be declared ultra vires the Constitution.

4. A number of provisions  including Sections 5, 6, 7, 8 and 13  of  the  NTT  Act,  undermine  the  independence  of  the  adjudicatory  process vested in the NTT, and as such, are liable to be set aside in their present format."

After hearing the extensive arguments that were put forward by all the sides, i.e. the Petitioners, the respondents and the interveners in the case. The Supreme Court came to the following conclusion

"i)  The Parliament has the power to enact legislation, and to vest adjudicatory functions,  earlier  vested  in  the  High  Court,  with  an  alternative  court/tribunal.Exercise  of  such  power  by  the  Parliament  would  not  per  se  violate  the  ―basic structure‖ of the Constitution.

(ii)  Recognized  constitutional  conventions  pertaining  to  the  Westminster model,  do  not  debar  the  legislating  authority  from  enacting  legislation  to  vest adjudicatory  functions,  earlier  vested  in  a  superior  court,  with  an  alternativecourt/tribunal. Exercise of such power by the Parliament would  per se  not violate any constitutional convention.

(iii)  The  ―basic  structure‖  of  the  Constitution  will  stand  violated,  if  while enacting legislation  pertaining to transfer of judicial power, Parliament does not ensure,  that  the  newly  created  court/tribunal,  conforms  with  the  salient characteristics and standards, of the court sought to be substituted.

(iv)  Constitutional  conventions,  pertaining  to  constitutions  styled  on  the Westminster  model,  will  also  stand  breached,  if  while  enacting  legislation, pertaining to transfer of  judicial power, conventions and salient characteristics of the court sought to be replaced, are not incorporated in the court/ tribunal sought to be created.

(v)  The prayer made in Writ Petition (C) No.621 of 2007 is declined. Company Secretaries are held ineligible, for representing a party to an appeal before the NTT.

(vi)  Examined on the touchstone of conclusions (iii) and (iv) above, Sections 5, 6, 7, 8 and 13 of the NTT Act (to the extent indicated hereinabove), are held tobe unconstitutional.  Since the  aforesaid  provisions,  constitute the edifice of the NTT  Act,  and  without  these  provisions  the  remaining  provisions  are  rendered ineffective and inconsequential, the entire enactment is declared unconstitutional."

This judgment of the Supreme Court has posed a new problem to the government, which is already dealing with high number of cases pending in the Courts. The National Tax Tribunal Act was seen as a mechanism to reduce arrears, as it would have taken the tax cases from the already burdened High Courts to the Tribunal. The provisions of the now declared unconstitutional act provided that the appeal from NTT could only be heard at the Supreme Court. The National Tax Tribunal Act also provided that if there was a difference ininterpretation regarding a point of law, the same would be referred to the Special Bench of the Tribunal, which was empowered to take a final decision. Moreover, the Act also allowed the 'executive' to have extra control regarding appointments to the Tribunal and the Tribunal's procedure.

Justice Nariman's concurring judgment also states, "Chandra  Kumar  and  R.  Gandhi  have  allowed  tribunalization  at  the original  stage  subject  to  certain  safeguards.  The boundary has finally been crossed in this case. I would,  therefore,  hold that the National Tax Tribunals Act  is  unconstitutional,  being  the  ultimate  encroachment  on  the  exclusive domain of the superior Courts of Record in India."

Meanwhile, the law constituting National Company Law Appellate Tribunalis also facing a challenge regarding its constitutionality in the Supreme Court.

You may also like to read India's tryst with tribunalization and transfer of judicial power to regulatory bodies.