In its judgment in the case of Madras Bar Association v Union of India (Transfer Case (C) No 150 of 2006), a five-judge bench of the Supreme Court of India (SC) has held that the National Tax Tribunal Act, 2005 (NTT Act) as passed by the Parliament was unconstitutional and has struck it down. The SC has made certain important observations in connection with ‘separation of powers’, requirement of ‘judicial review’ in law, etc. while passing this important judgment.
The National Tax Tribunal Bill, 2004 (Bill) was referred to a Select Committee of the Parliament after it was introduced in the Parliament. The Select Committee, after granting personal hearings to various stakeholders, had serious reservations on setting up the NTT and communicated the same in its report. The Bill was presented before the Lower House of the Parliament (i.e. the Lok Sabha) in 2005 and was enacted in the same year. The Bill provided that all appeals against orders of the Income Tax Appellate Tribunal and the Customs, Excise and Service Tax Appellate Tribunal would be decided by the NTT instead of the High Courts as is presently the case. Further, appeals from the orders of the NTT were to be filed before the SC. The following main reasons for setting up the NTT were provided:
- To reduce pendency of huge arrears that had mounted in High Courts all over the country;
- Huge tax recovery was statedly held up in litigation before the High Court which directly impacted implementation of national projects/ welfare schemes of the Government of India;
- To have uniformity in the interpretation of tax laws; and
- The existing judges dealing with tax cases were from civil courts and, therefore, were not well versed to decide complicated tax issues.
In the present case, various stakeholders, including the Madras Bar Association, challenged the constitutional validity of the NTT Act as also the fact that the power of ‘judicial review’ vested in the High Courts was impinged by the NTT Act.
‘Special Leave Petition’ (SLP) filed before the SC
Four main contentions were advanced by the petitioners before the SC:
- Reasons for setting up the NTT were fallacious and non-existent.
- It is impermissible for the legislature to abrogate / divest the core judicial appellate functions, specially the functions traditionally vested with High Courts.
- Amendment to the Constitution of India (Constitution), to the extent it is violative of the basic structure of the Constitution (i.e. separation of powers, rule of law and judicial review), is liable to be declared ultra vires the Constitution.
- Certain provisions of the NTT Act undermine the independence of the adjudicatory process vested in the NTT and are liable to be set aside in their present format.
The SC, in two separate concurring judgments, after examining a plethora of cases on the subject of constitutional validity of various laws, held that the NTT Act was unconstitutional. Following are the important observations of the SC in this regard:
- Whether NTT Act violates the ‘basic structure’ of the Constitution
- When the judicial process is prevented by law from determining whether the action taken, was or was not, within the framework of the legislation enacted, it would amount to transgression of the adjudicatory / determinatory process by the legislature. Therefore, the exclusion of the power of ‘judicial review’ would strike at the ‘basic structure’ of the Constitution.
- Encroachment on the basic structure of the Constitution would be invalid, irrespective of whether it related to a limited number of individuals or a large number of people.
- The Parliament did not have the power to amend the ‘basic structure’ of the Constitution.
- The power of judicial review was vested with the judiciary to determine the legality of executive action and the validity of law enacted by the legislature. The power of judicial review was an integral part of India’s constitutional system and without it the ‘rule of law’ would become a teasing illusion and a promise of unreality.
- The judicial review exercised by the High Court under Articles 226 and 227 of the Constitution have remained unaltered and the power of the High Courts to exercise judicial superintendence over the benches of the NTT within their respective jurisdiction has been consciously preserved.
- Since the above jurisdiction of the High Court has not been ousted, the NTT will be deemed to be discharging a supplemental role, rather than a substitutional role. Accordingly, the submission that the NTT Act violates the basic structure of the Constitution cannot be acquiesced to.
- Whether transfer of adjudicatory functions of the High Court to NTT violates recognized constitutional elements
- Before and after promulgation of the Constitution, till the enactment of the NTT Act, all legislative provisions vested the appellate power of adjudication with the jurisdictional High Courts in relation to questions of law arising out of the Income Tax Act, the Customs Act and the Excise Act.
- The judicial power could be allowed to be exercised by an analogous / similar court or tribunal, with a different name. However, by virtue of the constitutional convention, while constituting the analogous court / tribunal, it will have to be ensured that the appointment and security of the tenure of the judges of that court would be the same as the court sought to be substituted.
- Accordingly, under recognized constitutional conventions, judicial power vested in superior courts can be transferred to co-ordinate courts / tribunals. However, the newly created court / tribunal would have to be established in consonance with the salient characteristics and standards of the court which is sought to be substituted.
- Whether Chartered Accountants (CAs) and Company Secretaries (CSs) can be allowed to appear before the NTT to represent a party to the appeal
- The SC observed that the NTT would be required to deal with various legal issues arising out of numerous laws and also interpret the provisions of the three statutes out of which appeals will be heard by it.
- Since the NTT would hear appeals from the Income Tax Appellate Tribunal and Customs, Excise and Service Tax Appellate Tribunal only on ‘substantial questions of law’ the SC held that it was difficult to appreciate the propriety of representation, on behalf of a party to an appeal, through either a CA or CS, before the NTT.
- CAs / CSs would, at best, be specialists in understanding and explaining issues pertaining to accounts. These issues would fall purely within the realm of facts.
- The SC rejected the prayer to allow CSs to represent a party to an appeal before the NTT.
- The SC also held that allowing CAs to appear on behalf of a party before the NTT would be unacceptable in law. Accordingly, the provision allowing CAs to represent a party before the NTT was held to be unconstitutional and unsustainable in law.
- Whether the provision relating to location of the benches of the NTT was constitutionally valid
- The provision of the NTT Act to the effect that the sittings of the NTT would ordinarily be conducted in the National Capital Territory of Delhi, would render the remedy inefficacious and, thus, unacceptable in law.
- The SC observed that the Central Government will be a stakeholder in each and every appeal / case, which would be filed before the NTT. It cannot, therefore, be appropriate to allow the Central Government to play any role, with reference to the places where the benches would be set up, the areas over which the benches would exercise jurisdiction, the composition and the constitution of the benches and the transfer of the Members from one bench to another. It would be inappropriate for the Central Government to have any administrative dealings with the NTT or its Members.
- Allowing the Central Government to participate in the aforesaid administrative functioning of the NTT would impinge upon the independence and fairness of the Members of the NTT. For the NTT Act to be valid, the Chairperson and Members of the NTT should be possessed of the same independence and security, as the judges of the jurisdictional High Courts (which the NTT is mandated to substitute).
- This provision of the NTT Act is not sustainable in law as it does not ensure that the alternative adjudicatory authority is totally insulated from all forms of interference, pressure or influence from co-ordinate branches of Government. Therefore sub-sections (2), (3), (4) and (5) of Section 5 of the NTT Act were held to be unconstitutional.
- Whether persons with the qualifications as provided in the NTT Act can be appointed as Member of the NTT
- The SC expressed doubts on how Accountant Members and Technical Members would handle complicated questions of law relating to tax matters, and also questions of law on a variety of subjects (unconnected to tax), in exercise of the jurisdiction vested with the NTT. It also expressed doubts on how Technical Members, who may not even possess the qualification of law, or may have no experience at all in the practice of law, would be able to deal with substantial questions of law, for which alone, the NTT has been constituted.
- The Court opined that only a person possessing professional qualification in law, with substantial experience in the practice of law, will be in a position to handle the onerous responsibilities which a Chairperson and Members of the NTT will have to shoulder.
- The composition of the NTT would have to be on the same parameters as the judges of the High Courts.
- Since the appointments of the Chairperson / Members of the NTT are not on the parameters expressed hereinabove, the same were unsustainable under the declared law.
- Accordingly, the provision relating to appointment of Chairman and Members was also declared to be unconstitutional.
- Similarly, other provisions of the NTT Act relating to the manner of appointment of Members, the duration of appointment, etc. were also held to be unconstitutional. The SC held that in the absence of the aforesaid provisions which were held to unconstitutional the remaining provisions were rendered otiose and worthless. Accordingly, the provisions of the NTT Act as a whole were set aside.
- One of the Judges in his separate concurring judgment has held that the NTT Act is unconstitutional, being the ultimate encroachment on the exclusive domain of the superior Courts of Record in India.
This is an important judgment in the context of testing the constitutional validity of laws enacted by the Parliament. The importance of the judicial review by High Courts in the context of tax matters has also been be highlighted. The concurring judgment passed by one of the Judges has also held that Tribunals cannot decide ‘questions of law’ and those can only be decided by the High Courts and the Supreme Court under the Constitution. One of the fundamental principles emerging out of the judgment is that important questions of law can be heard and decided only by High Courts where the judges are trained in legal matters, have practiced law and have mastery over such legal matters. The SC has recognized that a taxpayer will need a forum which can ‘judiciously’ adjudicate tax matters and that this can be done by High Courts which consist of legal experts who can interpret laws and give effect to the intention of the Parliament in terms of provisions of law.