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NTT Act Unconstitutional: Lawyers React!

Published on Thu, Sep 25,2014 | 18:50, Updated at Thu, Sep 25 at 19:25Source : 

By: Payaswini Upadhyay, CNBC-TV18

In a landmark judgment, today the Supreme Court declared the National Tax Tribunal (NTT) Act as unconstitutional.

The Parliament passed the law for the creation of the National Tax Tribunal in 2005. A year later, the Madras High Court Bar Association challenged the law on the following grounds

The first contention: 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.

The second contention: 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 be set aside.

The third contention: 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 above mentioned components of the basic structure of the Constitution,is liable to be declared ultra vires the Constitution

The fourth contention: 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.

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 State s 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.”

“The National Tax Tribunals Act is unconstitutional, being the ultimate encroachment on the exclusive domain of the superior Courts of Record in India.”

‘The Firm’ spoke to some of the leading tax practitioners in the country for their quick reaction on this landmark judgment.

Dinesh Kanabar
Deputy CEO, KPMG

“The key issue before the supreme court was watering down of the court level and pushing matters to a tribunal. Indeed, the quality of justice is the key. One totally agrees with the supreme court on this. There is a need to balance this with speed of justice. The clogging up of matters at the courts is an issue which needs to be addressed.”

Rohan Shah,
Managing Partner, Economic Laws Practice

“Yet another instance where the Supreme Court will have the last word in the context of a governmental action. It is an important judgement on the issue of separation of powers and the principle of "basic structure". At a practical level, the issue of pendency and multiplication of tax litigation will continue to vex the system. Some urgent reforms to address this are required at the earliest. This judgement will also have a trickle-down effect in the context of various other tribunals, which are currently constituted in a manner similar to that proposed for the National Tax Tribunal.”

Mukesh Butani
Managing Partner, BMR Legal

“The judgement essentially says that NTT law violated the basic structure of the constitutional framework which prescribes for powers of the state court and tribunals. The NTT assumes powers of a state HC on various counts and hence violative of constitution. The intent - to speed up justice was clearly honourable but the drafting was faulty and impeached upon constitutional provisions particularly with respect to powers of a state court. The VP Singh formula of 85 - National Court of Direct Taxes was perhaps a better model than NTT.”

Porus Kaka
Senior Advocate

“Congratulations to the Honble Court in preserving the Basic structure of our Constitution and the independence of the Judiciary.”

Aseem Chawla
Partner, MPC Legal

“The Hon’ble Supreme Court, in a unanimous decision, has struck down the National Tax Tribunal as unconstitutional. It is widely believed that the same did tantamount as an encroachment in the judicial making process, which is viewed as the domain of the superior Courts. In a situation, where judicial powers are usurped by the Parliament, the same is regarded as violation of the basic structure of the Constitution. Tribunalisation of justice has always been a contentious matter debated in many fora and with the striking down of the National Tax Tribunal, one needs to see that how judicial reforms in the tax sphere are carried out, considering the huge backlog of matters pending before the various High Courts across the country”.

Anu Dutt
Partner, DMD
“It is a far reaching judgment and will set the tone of other Tribunals. It is a step in the right direction.”

Sanjay Saghvi
Partner, Khaitan & Co.

“The judgement of the five judges constitution Bench of the Supreme Court striking down constitution of National Tax Tribunal is not at all surprising. In fact, it was only to be expected. In my view, there was a conceptual flaw in constituting this Tribunal for the reason that it is neither fair nor legally permissible to replace the role of the High Courts with National Tax Tribunal in tax matters. A litigant (tax payer) will need a forum who can ‘judiciously’ adjudicate a tax matter and provide a judgement accordingly which can be done by High Courts which consists of the legal experts who can interpret laws and give effect to the intention of the Parliament in terms of provisions of the tax laws. While one awaits the text of the Supreme Court judgement, I would say it is a welcome judgement.”

Rajan Vora
Partner, EY

“A Constitution of 5 Judge Bench of the Supreme Court today delivered a landmark judgement, holding that the National Tax Tribunal Act, 2005 (NTT Act)* is ultra vires the Constitution. This judgement is likely to have wide ramifications. In the majority judgment, the Court held that although Constitutional conventions do not debar Parliament from vesting judicial powers in Tribunals, it should have the trappings of a court; else it would be violative of the basic structure of the Constitution. The Court, therefore, struck down the Constitutionality of the Act on the ground that the NTT does not have the salient characteristics of the Courts which it seeks to replace. It held the basic provisions (Section 5 to 8 and 13 of NTT Act) as unconstitutional. Since the aforesaid provisions, constitute the edifice of the NTT Act, and without these provisions the remaining provisions are rendered ineffective and inconsequential, the entire enactment is declared unconstitutional. In his concurring judgment, Justice Nariman further mentioned that Tribunals cannot decide ‘questions of law’ and those can only be decided by superior Constitutional Courts. In the said judgement, the Supreme Court has not struck down the powers of legislature under Article 323B of the Constitution, to constitute the Tribunals by taking away some of matters which were earlier in the domain of judiciary. However, the Court has struck down the NTT Act, as ultra-vires as it does not satisfy the salient characteristics and standards of the Court sought to be substituted. The Court has also held that since NTT Act was to deal with ‘substantial question of law’ on various laws and not only under Income Tax Act or Company Law, Chartered Accountant’s and Company Secretary’s cannot be permitted to represent a party before NTT and since this Act permitted them to appear/ represent, this was held as unconstitutional. *Note: Though the NTT Act was passed, it was not made operational, since the validity of the same was challenged before Supreme Court.”

(For the impact of the SC Judgment, Watch The Firm This Week) 


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