National Tax Tribunals Act declared unconstitutional

Sections 5, 6, 7, 8 and 13 of the NTT Act were held to be unconstitutional, they since constituting the structure of the NTT Act and without these provisions the remaining provisions becoming ineffective and inconsequential, the entire enactment was held to be declared as unconstitutional.

The Constitutional validity of the National Tax Tribunal Act, 2005 (NTT Act) was the subject matter of challenge besides that of the Constitution (Forty-second Amendment) Act, 1976 on the ground that it violates the basic structure of the Constitution of India (Constitution) by impinging on the power of “judicial review” vested in the High Court. The primary contention was that High Courts which discharge judicial functions cannot be substituted by an extra-judicial body.

It was contended that Article 323B, inserted by the Constitution (Forty-second Amendment) Act 1976, to the extent that it violated the principles of, “separation of powers”, “rule of law”, and “judicial review”, was liable to be struck down as the same allegedly violate the “basic structure” doctrine. Various provisions of the NTT Act were challenged on the premise that they had trappings of executive control over the adjudicatory process vested with the NTT, and therefore unconstitutional. Another contention raised was to determine as to whether the transfer of adjudicatory functions vested in the High Court to the NTT violates recognized constitutional conventions and further whether while transferring jurisdiction to a newly created court/tribunal, it is essential to maintain the standards and the stature of the court replaced? 

It was held that “judicial review” is a part of the “basic structure” of the Constitution. The Constitution regulates the manner of governance in substantially minute detail. Its “basic structure” is inviolable and the same would apply to all other legislations (other than amendments to the Constitution) as well, even though the legislation had been enacted by following the prescribed procedure, and was within the domain of the enacting legislature, any infringement to the “basic structure” would be unacceptable.

Right from the beginning, well before the promulgation of the Constitution, the core judicial appellate functions, for adjudication of tax related disputes, were vested with the jurisdictional High Courts who have traditionally been exercising the jurisdiction to determine questions of law, under all the above tax legislations. The income-tax legislation, the customs legislation, as well as, the central excise legislation uniformly provided that in exercise of its appellate jurisdiction the jurisdictional High Court would adjudicate appeals arising out of orders passed by the respective Appellate Tribunals. The said appeals were by a legislative determination to be heard by benches comprising of at least two judges of the High Court. Adjudication at the hands of a bench consisting of at least two judges, by itself is indicative of the legal complications, insofar as the appellate adjudicatory role, of the jurisdictional High Court was concerned. It would, therefore, not be incorrect to conclude that before and after promulgation of the Constitution, till the enactment of the NTT Act, all legislative provisions vested the appellate power of adjudication, arising out of the Income Tax Act, the Customs Act and the Excise Act, on questions of law, with the jurisdictional High Courts.

Recognized constitutional conventions pertaining to the Westminster model does 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. However, 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. The 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.

In view of the above Sections 5, 6, 7, 8 and 13 of the NTT Act were held to be unconstitutional, they since constituting the structure of the NTT Act and without these provisions the remaining provisions becoming ineffective and inconsequential, the entire enactment was held to be declared as unconstitutional.

In the concurring opinion as delivered by Justice Nariman, it was observed that decision of a substantial question of law is a matter of great moment. It must be a question of law which is of general public importance or is not free from difficulty and/or calls for a discussion of alternative views. A judicially trained mind with the experience of deciding questions of law is a sine qua non in order that such questions be decided correctly. Substantial questions of law which relate to taxation would also involve many areas of civil and criminal law, for example Hindu Joint Family Law, partnership, sale of goods, contracts, Mohammedan Law, Company Law, Law relating to Trusts and Societies, Transfer of Property, Law relating to Intellectual Property, Interpretation of Statutes and sections dealing with prosecution for offences.

All substantial questions of law under constitutional scheme have to be decided by the superior courts alone. One of the objects for enacting the National Tax Tribunals Act was that it can lay down the law for the whole of India which then would bind all other authorities and tribunals. This would lead to direct encroachment on the High Courts’ power under Article 227 to decide substantial questions of law binding all tribunals. Accordingly, the National Tax Tribunals Act was held to be unconstitutional.

[Madras Bar Association vs. Union of India & Anr.]
(SC, 25.09.2014)