The Supreme Court ruling, striking down the National Tax Tribunal (NTT) Act as unconstitutional, not only leaves the Indian tax ecosystem poorer for an additional dispute resolution forum but also creates uncertainty over the future of other tribunals. The Act had proposed to replace the high courts with the NTT to hear appeals against the orders of various appellate tribunals, which, so far, had been heard by the high courts. A petition raising the question of separation of powers led to the Supreme Court terming the Act unconstitutional.
Given the high degree of pendency of tax cases at various levels, and the length of time for which the cases have been stuck, the NTT could have been a window to cut lingering litigation. How important this aspect is for tax reforms has been pointed out by the Tax Administration Reform Commission in its first report. The success rate of the revenue authorities in disputes being heard outside the departmental level has been uniformly poor. The tax authorities have taken note of this and the decision to reduce 60% cases in FY15 at the commissioner level is a reflection of this realisation. The revenue department also has to take other measures to move away from frivolous litigation. Separating the litigation management and revenue collection functions is a good idea.
While it has been argued that the NTT was like any other tribunal, say, a TDSAT, there already are tribunals for both direct and indirect taxes. Additionally, the apex court noted that tax disputes often involve significant questions for civil and criminal law, which is where the body was likely to violate the separation of powers.
While the government will have to look at other measures to reduce litigation, it can even look at redesigning the NTT Act to the satisfaction of the Supreme Court; the NTT judgment has also left the fate of other tribunals in question, especially of those proposed under the Companies Act 2013. The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), both are created under sections of the Companies Act 2013 and are, in spirit, similar to the sections in the NTT Act that the Supreme Court found objectionable. Even though the apex court has upheld these tribunals earlier, its NTT judgment leaves NCLT and NCLAT on shaky ground.
National Tax Tribunal
Chronology
1978: SC Choksi committee recommends setting up of a Central Tax Court
October 2003: The National Tax Tribunal Ordinance is promulgated by the President
End 2003-early 2004: Ordinance is challenged in various high courts (Odisha, Calcutta, Gujarat, etc) on grounds of constitutional validity
Ordinance lapses following dissolution of 13th Lok Sabha
December 2004: NTT Bill introduced in Parliament
2005: NTT Act is passed
2006: Madras Bar Association files petition against the Act
September 25, 2014: Five-member SC bench strikes down Act, deeming
sections 5,6,7,8 and 13 as unconstitutional (violating separation of powers)
Mandate of the Act: The NTT was to function as an intermediate between the various tax tribunals and the Supreme Court. The aim was faster disposal of disputes. Any appeals against NTT orders were to be heard directly by the SC under the Act. The SC held that the Act took away the power of judicial review by high courts under articles 226 and 227.
Tribunals whose future is now uncertain:
National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), formed under the Companies Act, 2013. Sections 409, 411, 412, 413, 419, 423 and 432 of the Companies Act have provisions similar to those contained in the sections of the NTT Act that were deemed unconstitutional. But the SC, in a 2010 order, has held the two tribunals as constitutional, suggesting only changes in the composition of the NCLT and NCLAT.
