National Taxation Tribunal law is unconstitutional, rules apex court

The Supreme Court on Thursday declared as unconstitutional a law under which a national tribunal was to be set up to decide tax-related cases by taking away the jurisdiction of High Courts in such matters.

A five-Judge Constitution Bench comprising Chief Justice RM Lodha and Justices JS Khehar, J Chelameswar, AK Sikri and Rohinton Nariman held that the law, the National Tax Tribunal Act, was the ultimate encroachment on the exclusive domain of the superior Courts of Record.

The UPA-I had enacted the law paving the way for the creation of National Tax Tribunals, which would have helped reduce pendency of tax cases before High Courts. Tax experts say this decision could impact speedier disposal of pending cases that run into thousands of crores of rupees.

The Bench passed the order on a batch of petitions filed by the Madras Bar Association and others challenging the constitutional validity of the NTT Act contending that there was a grave danger that the judiciary would be substituted by quasi-judicial tribunals functioning as departments of ministries.

Writing the main judgment, Justice Khehar said: “The Parliament has the power to enact legislation and to vest adjudicatory functions, earlier vested in the High Court, with an alternative court/tribunal. Exercise of such power by the Parliament would not per se violate the basic structure of the Constitution.

Conform to standards “The basic structure of the Constitution will stand violated if, while enacting legislation pertaining to transfer of judicial power, the 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 National Tax Tribunal encroaches upon the power of higher judiciary, which can only decide issues involving substantial laws and not a tribunal.” Justice Nariman wrote in a separate but concurring judgment.

The Bench said: “It is obvious that substantial questions of law which relate to taxation would also involve many areas of civil and criminal law… It is therefore not correct to say that taxation, being a specialised subject, can be dealt with by a tribunal. 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 High Courts’ power under Article 227 of the Constitution to decide substantial questions of law which would bind all tribunals.”

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