rajinder_tax

The proposal for the formation of NTT was initiated in late 1980’s by the ‘Arrears Committee’. It was during the NDA (National Democratic Alliance) regime in 2003 that the National Tax Tribunal Bills and ordinance came into existence. Having realized the need for uniformity, certainty in the administration of the taxation laws and on the recommendation of the Chokshi committee, the National tax tribunal act, 2005 was enacted on 21st December, 2005 for lying and hearing appeals, instead of High courts against the orders passed by the Income tax Appellate tribunal and the Central Excise, Customs and Service tax Appellate tribunal. The National Tax Tribunal act, 2005 was brought into force by the notification of the Government of India S.O. 1826 (E) on 28th December, 2005. The Parliament had enacted this act for setting up National Tax Tribunals (NTT) across the country for speedy adjudication of disputes on Direct & Indirect Tax matters. The Act provided for an alternate Appellate authority to which appeals from the Income Tax Appellate Tribunal and the Customs, Excise and Service Tax Appellate Tribunal would lie. Migration of cases was envisaged in the Act to the National Tax Tribunals from existing appellate authorities in respect of all pending matters and proceedings and this was expected to hasten the disposal of the large backlog of tax cases. The NTT was expected to act like ‘Court of first instance’; a concept akin to Tax Court in matured tax jurisdictions. The tribunal constituted of 15 Tribunals; 10 for Direct Tax and five for Indirect Tax matters. It also sought constitution of a special 5 member bench to resolve conflicting decision on question of law should the benches differ in their view. However, numerous Public Interest Litigations and stay orders stalled the implementation of the Act for more than a year.

The Controversy in the case of Madras Bar Association v. Union of India:[1]

A year later after the establishment of NTT in the year 2005, the Madras High Court Bar Association challenged the act in the year 2006 on the following grounds:

  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. Furthermore, 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 should be set aside.
  • 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 basic structure of the Constitution, is liable to be declared ultra vires the Constitution.
  1. A number of provisions 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.

OBSERVATIONS OF THE COURT ON VARIOUS ISSUES:

  1. I. Constitutional validity of the NTT Act: Does the NTT Act violate the “basic structure “of the Constitution?

A perusal of the judgment rendered in Kesavananda Bharati case[2] reveals, that “separation of powers” creates a system of checks and balances, by reasons of which, powers are so distributed, that none of the three organs transgresses into the domain of the other. The concept ensures the dignity of the individual. The power of “judicial review” ensures that executive functioning confines itself within the framework of law enacted by the legislature. Accordingly, the demarcation of powers between the legislature, the executive and the judiciary, is regarded as the basic element of the constitutional scheme. 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 the transgression of the adjudicatory process by the legislature. Therefore, the exclusion of the power of “judicial review”, would strike at the “basic structure” of the Constitution. The power of “judicial review” vested in the High Court under Articles 226 and 227 of the Constitution, has remained intact. This aspect of the matter has a substantial bearing, to the issue in hand and will also lead to some important inferences. Therefore, it must never be overlooked, that since the power of “judicial review” exercised by the High Court under Articles 226 and 227 of the Constitution has remained unaltered, the power vested in High Courts to exercise judicial superintendence over the benches of the NTT within their respective jurisdiction, has been consciously preserved. In the above view of the matter, the submission that the NTT Act violates the “basic structure” of the Constitution cannot be acquiesced to.

  1. Whether while transferring jurisdiction to a newly created court/tribunal is it essential to maintain the standards and the stature of the court replaced?

The three wings of governance would operate in their assigned domain/province. But the judicial power could be allowed to be exercised by an analogous/similar court/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 tenure of judges of that court would be the same, as of the court sought to be substituted. Parliament was not precluded from establishing a court under a new name, to exercise the jurisdiction that was being exercised by members of the higher judiciary, at the time when the constitution came into force. But when that was done, it was critical to ensure, that the persons appointed to be members of such a court/tribunal, should be appointed in the same manner, and should be entitled to the same security of tenure, as the holder of the judicial office, at the time when the constitution came into force. The newly constituted court/tribunal will be deemed to be invalidly constituted, till its members are appointed in the same manner, and till its members are entitled to the same conditions of service, as were available to the judges of the court sought to be substituted.

This Court has recognized, that transfer of jurisdiction is permissible, but in effecting such transfer, the court to which the power of adjudication is transferred, must be endured with salient characteristics, which were possessed by the court from which the adjudicatory power has been transferred. But whenever there is such transfer, all conventions/customs/practices of the court sought to be replaced, have to be incorporated in the court/tribunal created. 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.

III. Whether Company Secretaries should be allowed to appear before the NTT to represent a party to an appeal and whether Section 13(1) of the NTT Act in so far as it allows Accountants to represent a party to an appeal before the NTT is valid?

Members of the NTT would most definitely be confronted with the legal issues emerging out of Family Law, Hindu Law, Mohammedan Law, Company Law, Law of Partnership, Law related to Territoriality, Law related to Trusts and Societies, Contract Law, Law relating to Transfer of Property, Law relating to Intellectual Property, Interpretation of Statutes, and other Miscellaneous Provisions of Law, from time to time. The NTT besides the aforesaid statutes, will not only have to interpret the provisions of the three statutes, out of which appeals will be heard by it, but will also have to examine a challenge to the vires of statutory amendments made in the said provisions, from time to time. They will also have to determine in some cases, whether the provisions relied upon had a prospective or retrospective applicability.

Keeping in mind the fact, that in terms of Section 15 of the NTT Act, the NTT would hear appeals from the Income Tax Appellate Tribunal and the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) only on “substantial questions of law”, it is difficult to appreciate the propriety of representation, on behalf of a party to an appeal, through either Chartered Accountants or Company Secretaries, before the NTT. The determination at the hands of the NTT is shorn of factual disputes. It has to decide only “substantial questions of law”. The Chartered Accountants and Company Secretaries would at best be specialists in understanding and explaining issues pertaining to accounts. These issues would, fall purely within the realm of facts. It is difficult to accept the prayer made by the Company Secretaries to allow them, to represent a party to an appeal before the NTT. Even insofar as the Chartered Accountants are concerned, allowing them to appear on behalf of a party before the NTT would be unacceptable in law. Thus the claim of Company Secretaries, to represent a party before the NTT was rejected. Accordingly the prayer made by Company Secretaries was hereby declined.

  1. The constitutional validity of Sections 5, 6, 7, 8 and 13 of the NTT Act.

Section 5(2) of the NTT Act mandates, that the NTT would ordinarily have its sittings in the National Capital Territory of Delhi. It is imperative for the legislature to ensure, that redress should be available, with the same convenience and expediency, as it was prior to the introduction of the newly created court/tribunal. Thus viewed, the mandate incorporated in Section 5(2) 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. Section 5 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. There is no alternative, but to hold that sub-sections (2), (3), (4) and (5) of Section 5 of the NTT Act are unconstitutional.

Even though the Attorney General pointed out, that the power of “judicial review” under Articles 226 and 227 of the Constitution had not been taken away, yet he acknowledged that there would be implicit limitations where such power would be exercisable. Therefore, all the more, the composition of the NTT would have to be on the same parameters as judges of the High Courts. So Section 6(2)(b) of the NTT Act is declared unconstitutional.

Section 7 cannot be considered to be constitutionally valid, since it includes in the process of selection and appointment of the Chairperson and Members of the NTT, Secretaries of Departments of the Central Government. The interests of the Central Government would be represented on one side, in every litigation before the NTT. It is not possible to accept a party to litigation, can participate in the selection process, whereby the Chairperson and Members of the adjudicatory body are selected.

Chairperson/Member is appointed to the NTT, in the first instance, for duration of 5 years. Such Chairperson/Member is eligible for reappointment, for a further period of 5 years. We have no hesitation to accept the submissions advanced at the hands of the counsel for the petitioners, that a provision for reappointment would itself have the effect of undermining the independence of the Chairperson/Members of the NTT.

JUDGEMENT:

Finally, on 25th September, 2014, The five-judge Constitution Bench of Supreme Court comprising Chief Justice of India, R M Lodha and Justices J S Khehar, J Chelameswar, A K Sikri and Rohinton Nariman gave their decision on the lead petition which was brought by the Madras Bar Association and clubbed with several other cases deciding on the legality of the NTT and they rejected  sections 5, 6, 7, 8 and 13 of the National Tax tribunal (NTT) Act, 2005 rendering it ineffective for all practical purposes.

The Supreme Court, while declaring NTT Act has unconstitutional noted:

“All substantial questions of law have under our constitutional scheme to be decided by the superior courts and the superior courts alone. Indeed, one of the objects for enacting the National Tax Tribunals Act, as stated by the Minister on the floor of the House, is that the National Tax Tribunal can lay down the law for the whole of India which then would bind all other authorities and tribunals. This is a direct encroachment on the High Courts power under Art. 227 to decide substantial questions of law”

“In all tax matters, the States invariably a party and the High Court is ideally situated to decide substantial questions of law which arise between the State and private persons, being constitutionally completely independent of executive control. The same cannot be said of tribunals which will have to be under a nodal ministry as tribunals are not under the supervisory jurisdiction of the High Courts.”

Justice Nariman wrote a separate but concurring judgment ruling that the law is unconstitutional on the following two grounds:

  1. Separation of powers between the judiciary and the executive
  2. Judicial superintendence.

Thus The National Tax Tribunals Act was held to be unconstitutional, being the ultimate encroachment on the exclusive domain of the superior Courts of Record in India.

[1] 2014-TIOL-82-SC-MISC-CB

[2] AIR 1973 SC 1461

By Sibani Panda, KIIT Law School, KIIT University, Bhubaneswar.