The judgment gives the govt a chance to come up with a more robust legislative framework for the tax tribunal.
The fate of the National Tax Tribunal (NTT) is sealed as the Supreme Court, in its landmark ruling, has declared the legislative edifice of NTT as unconstitutional and an attempt to encroach upon the Judiciary’s powers. Since the enactment of NTT Act in 2005, multiple challenges—to its constitutionality—from the State Bar Associations marred its beginning. Indeed, NTT could never see the light of the day before it was struck down on the grounds of the rule of separation of powers between the Executive and the Judiciary; and other being on judicial independence.
Tracking backwards, the idea of a national tax court or tribunal was first mooted by the first Law Commission constituted in 1955. Later in 1970, the Wanchoo and N Palkhivala Committee recommended the creation of separate tax benches in the high courts, and gradual transition to ‘Central Tax Court’ forum to accelerate tax dispute resolution. Significant efforts had been made in the decades ever since to usher in judicial reforms.
The National Tax Tribunal Act, 2005, legislated by Parliament was an outcome of prolonged Executive deliberations on not just facilitating speedy dispute resolution but also on bringing in uniformity in the interpretation of statutes. The NTT Act provided transfer of appellate jurisdiction, vested in the high courts involving ‘substantial question of law’; on its constitution, the orders of Income Tax Appellant Tribunal (ITAT) and Customs Excise and Service Tax Appellate Tribunal (CESTAT) were to lie before the NTT, thus ousting the jurisdiction of the high courts.
The NTT Act was largely predicated on Parliament’s quasi-judicial powers under Article 323B, which empowers legislature to constitute administrative tribunals to exclude jurisdiction of higher courts except for the Supreme Court. Post economic reforms, Parliament has exercised its powers to set up several such tribunals to deal with disputes in the area of capital markets (Sebi), telecom (TDSAT), etc whose orders can be appealed directly with the SC. Whilst the constitutionality of Article 323B has been upheld by the apex court (in the case of S P Sampath Kumar vs Union of India), the Court cautioned that the power of judicial review under the Constitution could rest only with the Supreme Court or the high courts under Article 32 and 226, respectively.
The unanimous ruling by the five-member bench recognises the Constitutional convention, which does not prevent legislative action, to vest adjudicatory functions of the superior court with an alternative institutional mechanism; however, the Supreme Court has held that such abrogation of powers shall not stand the test of constitutionality if the legislature fails to ensure that the delegated tribunal has all trapping and standards of a Court.