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Apex Court Declares National Tax Tribunal Law Unconstitutional
Sep 29, 2014

The Supreme Court struck down a 2005 law setting up a National Tax Tribunal (NTT), which proposed to reduce the pile-up of tax demands locked up in litigation in high courts that currently amounts to over Rs.4 trillion. 

Chief justice R.M. Lodha and justices J.S. Khehar, J. Chelameswar and A.K. Sikri quashed sections 5, 6, 7, 8 and 13 of the law, rendering it ineffective for all practical purposes. Justice R.F. Nariman, agreeing with the majority view, held the law unconstitutional on two grounds—separation of powers between the judiciary and the executive, and judicial superintendence.

The government will now have to look at new ways to reduce pending litigation both on direct and indirect taxes. More than Rs.4 trillion of tax demand is locked up in pendency and litigation in tribunals and courts. This ruling could affect all similar tribunals set up to decide substantial questions of law, including the National Company Law Appellate Tribunal, which is also facing legal challenge. 

The NTT was seen as an alternative to high courts where the tax department or the assessee, 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 courts, already burdened with other cases, and speed up decision-making. It would have also ensured that different interpretations of law are not made by high courts, which would have to be ultimately settled by the Supreme Court. 

Under the NTT law, there were provisions which ensured that any different interpretation of the law would be referred to a special bench of the tribunal, which would take a final decision. Since the aforesaid provisions (sections 5, 6, 7, 8 and 13), 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. The ruling also states that NTT Act takes away the power of judicial review of the high courts under articles 226 and 227, as it provides an appeal directly to the Supreme Court against an NTT order. 

A substantial question of law, according to precedent, is one which is of general public importance, or significantly and directly affects the rights of the parties involved. Article 323B of the Constitution, which talks about the creation of tribunals by the executive, had also been challenged by the petitioners, as being violative of the concept of separation of powers between the executive and the judiciary. 


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