More than three decades ago the Choksi committee suggested the setting up of the Central Tax Court. Several years later VP Singh, the then finance minister, proposed the setting up of a National Court of Direct Taxes, which would function on par with the High Court as a dedicated Tax Court. The proposal did not see the light of day.

On July 15, 2003, the then finance minister, while addressing the 19th all-India conference of Chief Commissioners and Director Generals of Income- tax, Excise and Customs, in Delhi, made an announcement aiming to reduce the

litigation and ensure speedy disposal of pending cases by way of setting up of the National Tax Tribunal (NTT).

In October 2003 the President of India promulgated the National Tax Tribunal Ordinance, 2003, to set up the NTT under Article 323B of the Constitution. However, tax professionals across the country expressed reservations on the move to set up the NTT and urged the government to drop the proposal on several grounds including constitutional validity, lack of necessary infrastructure, etc. On such appeals, various High Courts (Calcutta, Gujarat, Orissa, etc) stayed the operation of the Ordinance. Subsequently, the Ordinance lapsed following the dissolution of the 13th Lok Sabha.

On December 6, 2004, the National Tax Tribunal Bill, 2004, was introduced in Parliament, inter alia, to overcome the pendency of a large number of cases before the High Courts. The Bill provided for the adjudication by the NTT of disputes with respect to levy, assessment, collection and enforcement of direct taxes. It also provided for the adjudication by the NTT of disputes with respect to the determination

of the rates of duties of customs and central excise on goods and the valuation of goods for the purposes of assessment of such duties as well as in matters relating to levy of service tax.

One of the reasons behind setting up the NTT was several instances where High Courts in different states had taken contrary views on similar issues. The Income-tax Act being a central legislation ought to have been interpreted and implemented in a uniform manner throughout the country. Speedy disposal, reduction of huge arrears and uniformity in the interpretation of tax laws were key reasons that motivated setting up of the NTT.

The NTT was proposed to be headquartered in Delhi with benches around the country and it would eventually to take up cases relating to both direct tax and indirect tax. It was also provided that all matters and proceedings including appeals and references under the direct taxes and indirect taxes (excluding sales tax) pending before any High Court would be transferred to the NTT upon establishment of the same. The appeal against the decision of the NTT would lie before the Supreme Court.

Subsequently, the NTT Act was passed in 2005. Before the NTT could be set up and become operational, several petitions were filed challenging the NTT Act. The first petition on the issue was filed in 2006 when the Madras Bar Association challenged the setting up of the NTT and later many other lawyers? bodies followed suit. The petitioners, including several bar associations in the country, had also challenged Article 323B of the Constitution.

On September 25, 2014, the Supreme Court passed a landmark judgment. A five-judge Constitution Bench headed by Chief Justice RM Lodha held that the NTT Act is ?unconstitutional? as several features of the NTT were in violation of constitutional norms.

In the judgment authored by Justice JS Khehar (representing four of the five judges), 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?viz the salient characteristics and the standards of the courts which it seeks to substitute, else it would be violative of the basic structure of the Constitution.

The decision quashed sections 5, 6, 7, 8 and 13 of the NTT Act as the same were held to be unconstitutional. Since these provisions constituted edifice of the NTT Act and without the same remaining provisions would be rendered ineffective and inconsequential, the entire enactment is declared unconstitutional.

Justice RF Nariman, while passing concurring judgment, agreed with the majority view and also observed that the NTT Act is departure made by Parliament to the extent that it allows tribunals to decide questions of law, which hitherto were decided by the superior constitutional courts. The NTT Act takes away the power of judicial review of the High Court under articles 226 and 227, as it provides an appeal directly to the Supreme Court against an NTT order.

Some other interesting aspects that were considered

by the Court are separation of powers between the

judiciary and the

executive and judicial superintendence. The Court

also held that chartered accountants and company secretaries are not eligible for representing a party to an appeal before the NTT.

This ruling disposes the efforts of the government to bring on fast-track the disposal of tax disputes and thereby reduce tax arrears. The government may have to find alternative ways of ensuring the speedier disposal of appeals. The committee constituted by the Central Board of Direct Taxes and the government needs to ensure that an alternate dispute resolution process is legislated early to achieve its objective of unclogging the backlog of cases in the High Courts and to increase the confidence of taxpayers.

The ruling may also have a bearing on similar tribunals set up, including the National Company Law Appellate Tribunal (NCLT) which would aid to speed up, inter alia, mergers etc. The NCLT is also facing similar legal challenge. As per news reports, the Madras Bar Association has already challenged the constitutional validity of NCLT before the Supreme Court.

The author is co-head of

Tax, KPMG in India.

Views are personal