Supreme Court declares entire National Tax Tribunal Enactment as Unconstitutional and struck it down

Delivering an important and far reaching judgment in Madras Bar Association vs Union of India Case No 150/2006 along with eleven other appeals/petitions, Supreme Court has declared the National Tax Tribunal   (NTT) as unconstitutional.

The constitutional validity of both National Tax Tribunal Act, 2005 and Constitution (Forty-second Amendment) Act, 1976 was challenged on the ground  that it violates the basic structure of the Constitution of India by encroaching on the power of “judicial review” vested in the High Court. It was argued that the NTT, is a quasi-judicial appellate tribunal and has been vested with the power of adjudicating appeals arising from orders passed by Appellate Tribunals under the Income Tax Act, the Customs Act, 1962, and the Central Excise Act, 1944). However Hitherto this jurisdiction was vested with High Courts. Thus judicial function of High Courts cannot be substituted by an extra-judicial body like NTT. It was also argued that the manner of the constitution of NTT lacks independence and fairness.

The apex court deliberated in details including historical perspective of the Income Tax, Custom and Excise legislation in India dating back to 1850 till present with respect to appellate remedies provided. The Court also deliberated in detail with respect to facts leading to promulgation of the NTT Act.

Issues raised by the petitioners were delineated by the Hon’ble Court as under:

(1) That the reasons for setting up the NTT (arrears of tax related cases before High Courts, huge tax recovery held up in tax litigation before High Courts, uniformity of decisions pertaining to tax laws, High Court Judges being not well-versed to determine complicated interpretation of tax-law related issues) were fallacious and non-existent.

(2) It is impermissible for the legislature to abrogate/divest the core judicial appellate functions, specially the functions traditionally vested with the High Court. The transfer of such functions to a quasi-judicial authority, devoid of essential ingredients of the superior court, sought to be replaced was constitutionally impermissible, and was liable to be set aside. Besides the appellate jurisdiction, the power of judicial review vested in High Courts under Articles 226 and 227 of the Constitution, has also been negated by the NTT Act. And therefore, the same be set aside.

(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.

A few excerpts of the judgment of the Hon’ble Supreme Court are as under;

“In view of the reasoning adopted by us, we hold that clause 2(d) of Article 323-A and clause 3( d ) of Article 323-B, to the extent they exclude the jurisdiction of the High Courts and the Supreme Court under Articles 226/227 and 32 of the Constitution, are unconstitutional. Section 28 of the Act and the “exclusion of jurisdiction” clauses in all other legislations enacted under the aegis of Articles 323-A and 323-B would, to the same extent, be unconstitutional. The jurisdiction conferred upon the High Courts under Articles 226/227 and upon the Supreme Court under Article 32 of the Constitution is a part of the inviolable basic structure of our Constitution. While this jurisdiction cannot be ousted, other courts and Tribunals may perform a supplemental role in discharging the powers conferred by Articles 226/227 and 32 of the Constitution.”

“…..This means that such tribunal should have as members, persons of a rank, capacity and status as nearly as possible equal to the rank, status and capacity of the court which was till then dealing with such matters and the members of the tribunal should have the independence and security of tenure associated with judicial tribunals.”

Conclusions drawn by the Hon’ble Court were as under:

(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 alternative court/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 to be 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.

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Neither Company Secretaries nor Chartered Accountants are authorised to appear before National Tax Tribunal (NTT)  --- Read More Click Here >>