Supreme Court quashes National Tax Tribunal Act

SC said though Parliament could create tribunals, these should have the trappings of a court

A five-judge constitution Bench of the Supreme Court on Thursday struck down the National Tax Tribunal Act, on the grounds that it encroached upon the power of the judiciary and the principle of separation of powers.

The Act envisaged setting up a National Tax Tribunal (NTT) to take up tax-related matters of high courts so that decisions on tax disputes could be expedited. The tribunal never came into being as petitions were filed against the law in courts.

The 2005 law was stuck in litigation in high courts. All cases were then transferred to the Supreme Court for a final decision.

NIPPED IN THE BUD

• The National Tax Tribunal Act was passed in 2005
• The tribunal was to be set up under the Act to hear appeals against orders of ITAT and CESTAT
• Tax-related matters of high courts were to come to the tribunal
• Before the tribunal could be set up, petitions were filed against the Act
• First petition was filed in 2006 when the Madras Bar Association challenged the proposed tribunal
• Many other bodies followed suit
• Key concern was that even company secretaries could be appointed as members of the tribunal

The apex court said though Parliament could create tribunals, these should have the trappings of a court. Company secretaries could not be appointed as tribunal members. The Bench headed by Chief Justice R M Lodha ruled if judicial powers were transferred to tribunals it would affect the basic structure of the Constitution and judicial independence.

The petitioners, including several bar associations in the country, had also challenged Article 323B of the Constitution, which enables the government to set up tribunals. However, the court did not invalidate it.

The core complaint is that the executive, especially retired bureaucrats, has predominant positions in all tribunals and judicial members are not given a sufficient role. The government justified the role of non-judicial members arguing the tribunals needed experts in various fields in view of the technical and complex subjects that came up before these bodies.

At present, appeals against orders of the Income-tax Appellate Tribunal (ITAT) or the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) go to a high court. The appeals were to come to the National Tax Tribunal, had it been set up. Appeals against the National Tax Tribunal’s judgments were to go to the Supreme Court.

Experts hailed the verdict but warned the finance ministry might have to look at alternative measures to speed solutions to tax disputes. K R Sekar, partner, Deloitte Haskins & Sells, said: “The judgment will have repercussion on speedier disposal of appeals before high courts.”

Though the ruling could be appreciated for upholding the Constitution and judicial hierarchy, it would go against the government’s intention of speedy disposal of appeals, he said.

Sekar said it was time for the committee constituted by the Central Board of Direct Taxes to see how alternative dispute resolution could be legislated to increase the confidence of taxpayers. CBDT has constituted a six-member panel to examine the litigation mechanism for income tax to bring down disputes.

An estimated Rs 4 lakh crore of tax revenue is locked up in litigation in various stages from commissioner appeal to courts.

This judgment will have an impact on the recent trend of setting up tribunals in many sectors. India has some 30 tribunals but their jurisdiction is a matter of controversy. Another petition before the Supreme Court challenges the establishment of the Company Law Appellate Tribunal. This tribunal, too, could not be set up due to the petition. Several laws setting up tribunals have been partially struck down or read down in the past. But in the case of the National Tax Tribunal, the entire law was struck down.

"We will need to review a wholesome policy towards 'tribunalisation' and create a balance between powers of the Supreme Court and high courts on the one hand and the specialised tribunals dealing with important questions of law on the other," said Sunil Jain, partner, J Sagar Associates.

He said specialised advocacy was needed in disputes of a technical nature which might not be available across all Benches of high courts in India and, thus, there was a need for recalibration.

Judge J S Khehar wrote Thursday's judgment for four of his brother judges and judge R F Nariman delivered a separate but concurring judgment using stronger words. He stressed substantial questions of law could be decided only by superior courts of record, meaning high courts and the Supreme Court.

The judgment named five provisions in the law as unconstitutional. They refer to the qualification of the chairman and members, their terms of office, jurisdiction of the tribunal and the eligibility to appear before the tribunal.