The Supreme Court of India on 25 September 2014 struck down the National Tax Tribunal (NTT) Act, 2005 terming it as unconstitutional.
The five-judge Constitution Bench of SC comprising Chief Justice of India R M Lodha and Justices J S Khehar, J Chelameswar, A K Sikri and Rohinton Nariman quashed Sections 5, 6, 7, 8 and 13 of the NTT Act rendering it ineffective for all practical purposes.
Since the provisions of sections 5, 6, 7, 8 and 13 of the NTT Act constitute the structure of whole Act and without these provisions the remaining provisions are rendered ineffective and inconsequential.
The bench ruled that these sections of the NTT Act by providing an appeal directly to the Supreme Court against an NTT order directly encroached upon the high courts’ power under Article 227 to decide substantial questions of law which would bind all tribunals.
Moreover, Justice Nariman wrote a separate but concurring judgment ruling that the law is unconstitutional on two grounds:
• Separation of powers between the judiciary and the executive
• Judicial superintendence.
However, SC bench did not quashed Article 323B of the Indian Constitution that talk about the creation of tribunals by the executive. Article 323B was challenged by the petitioners as being defiant of the concept of separation of powers between the executive and the judiciary.
Petition Challenging the NTT Act, 2005
Even before setting up of the tribunal, petitions were filed against the Act. First petition was filed in 2006 when the Madras Bar Association challenged the proposed tribunal.
The petitioner challenged the constitutional validity of the NTT Act and the Article 323B of the Indian Constitution. The contention was that Article 323B violates the basic structure of the constitution by allowing the legislature to take away jurisdiction of the High Courts and vesting them in Tribunals.
The petitioner also contended that the process of the selection of the appointees to the Tribunal must be done as in the case of the High Court Judges.
Effect of the Judgement
The National Tax Tribunal Law was meant for reducing the pile-up of tax demands locked up in litigation in high courts that currently amounts to over 4 trillion rupees.
But with this judgement, the government will have to look at new ways to reduce pending litigation on direct and indirect taxes. The committee constituted by the Central Board of Direct Taxes and government will work to ensure that an alternative dispute resolution process is legislated to increase the confidence of tax payers.
This ruling of Supreme Court can affect all such similar tribunals set up to decide substantial questions of law including the National Company Law Tribunal and Appellate Tribunal which are also facing legal challenge.
The National Tax Tribunal (NTT) Act, 2005
• The National Tax Tribunal Act was passed in 2005. The tribunal was set up under the Act to hear appeals against orders of Income-Tax Appellate Tribunal (ITAT) and Central Excise and Service Tax Appellate Tribunal (CESTAT).
• The NTT was seen as an alternative to high courts where the tax department, unhappy with the decision of the appellate tribunal, could file an appeal.
• The decision of the NTT could only be challenged in the Supreme Court. The idea was to move tax cases away from the high court and speed up decision-making.
• The NTT Act allowed the executive to have extensive control with regard to appointments of members and procedure of the tribunal.
When: 25 September 2014