2014 Supreme(SC) 713

SUPREME COURT OF INDIA
R.M. LODHA, CJI., JAGDISH SINGH KHEHAR, J. CHELAMESWAR, A.K. SIKRI & R.F. NARIMAN, JJ.
Madras Bar Association – Appellant
Versus
Union of India & Another – Respondents
Transferred Case (C) No. 150 of 2006 With Civil Appeal No. 3850 of 2006 Civil Appeal No. 3862 of 2006 Civil Appeal No. 3881 of 2006 Civil Appeal No. 3882 of 2006 Civil Appeal No. 4051 of 2006 Civil Appeal No. 4052 of 2006 Writ Petition (C) No.621 of 2007 Transferred Case (C) No.116 of 2006 Transferred Case (C) No.117 of 2006 Transferred Case (C) No.118 of 2006 Writ Petition (C) No.697 of 2007
Decided On : 25-09-2014

IMPORTANT POINTS
Parliament has the power to enact legislation, and to vest adjudicatory functions, earlier vested in the High Court, with an alternative court/tribunal. It will not per se violate the “basic structure” of the Constitution.
The “basic structure” of the Constitution will stand violated, if the newly created court/tribunal, do not conform with the salient characteristics and standards, of the court sought to be substituted.
Company Secretaries are held ineligible, for representing a party to an appeal before the NTT.
Sections 5, 6, 7, 8 and 13 of the NTT Act are held to be unconstitutional. Since these without these provisions the remaining provisions are rendered ineffective and inconsequential, the entire enactment is declared unconstitutional

Headnote:(a) Constitution of India – Article 50 – Separation of powers – Basic structure – Checks and balances to ensure that none of the three organs of the State transgresses into domain of others – Judicial review – Executive functioning should confine within framework of law enacted by legislature – Judicial review ensures that – Excluding judicial review – Prevention of judicial process from determining whether an action was or was not within framework of enacted law – Amounts to transgression of adjudicatory/determinatory process by legislature – Exclusion of power of “judicial review” would strike at the “basic structure” of the Constitution – Parliament does not have power to amend “basic structure” of the Constitution – Power of “judicial review” necessary to determine legality of executive action and the validity of laws enacted by legislature – “Separation of powers”, “rule of law” and “judicial review” at the hands of an independent judiciary, constitute the “basic structure” of the Constitution – Jurisdiction of judicial review could not be ousted. (Para 63)

       (1973) 4 SCC 225; 1975 Supp. SCC 1; (1980) 2 SCC 591; (1980) 3 SCC 625; 1981 (Supp.) SCC 87; (1997) 3 SCC 261; (2010) 11 SCC 87 – Relied upon

       (2010) 11 SCC 67; (1991) Suppl. 1 SCC 574; (1993) 4 SCC 441; (1987) 1 SCC 124 – Referred

       (b) Constitution of India – Articles 226/227 and 225 – NTT Act – Appellate powers of High Courts could be transferred to Tribunals – Not the powers of judicial review vested in High Courts – NTT Act only transferring jurisdiction of High Court with regard to specified subjects under tax related statutes – Permissible – Power of “judicial review” under Articles 226 and 227 remaining unaltered, power vested in High Courts of judicial superintendence over the benches of the NTT consciously preserved – NTT supplemental and not substitutional – NTT, held, not violative of basic structure of the Constitution. (Para 64)

       (1980) 2 SCC 591; (1987) 1 SCC 124; (1997) 3 SCC 261; (2010) 11 SCC 1 – Relied upon

       © Constitution of India – Articles 245 and 246 and entries 77 to 79, 82 to 84, 95 and 97 of the Union List of the Seventh Schedule; and entries 11A and 46 of the Concurrent List of the Seventh Schedule – An enactment even though enacted by following prescribed procedure and within the domain of legislative competence – Cannot infringe on ‘basic structure’ of the Constitution. (Para 65)

       (d) Administration of Justice – Adjudication of tax disputes – Questions of law – Reference and appellate jurisdiction – Powers of High Court and NTT – NTT Act – Proceedings before Appellate tribunal onwards are “judicial proceedings” – Function of adjudication on question of law – Core appellate jurisdiction under all Tax laws – Traditionally left to High Courts since before and after promulgation of the Constitution, till the enactment of the NTT Act. (Para 67, 68)

       (e) Administration of Justice – Power of judicial review – Superior Courts – Substitution by Tribunals – Transfer of judicial powers – Permissible – However all conventions/ customs/practices of the court sought to be replaced must be incorporated in the court/ tribunal created – To be established in consonance with salient characteristics and standards of the court which is sought to be substituted – Constitution of India – Article 225. (Para 71, 72)

       1976 All ER Vol. (1) 353; (1997) 3 SCC 261; (2010) 11 SCC 87; (1998) 2 SCC 688 – Relied upon

       (1966) 1 All ER 650; (2003) 2 AC 411; (1995) 183 CLR 245; 123 DLR (3d) 554; [1978] 2 S.C.R. 638; [1981] 1 S.C.R. 714; [1981] 2 S.C.R. 220; [1982] 1.S.C.R. 62; [1983] 1 S.C.R. 704; [1960] S.C.R. 32; [1973] S.C.R. 681 – Referred

       (f) Constitution of India – Article 225 – Prohibition against restricting original jurisdiction of High Court – Jurisdiction of High Courts under the provisions of the Income Tax Act, the Customs Act and the Excise Act – Appellate jurisdiction and not original jurisdiction – Article 225 not attracted. (Para 73)

       (g) National Tax Tribunals Act, 2005 – Section 13 and 15 – Representation – Chartered Accountants and Company Secretaries – Section 13 permitting Chartered Accountants to represent parties before NTT – Section 15 requiring NTT to hear appeals from the Income Tax Appellate Tribunal and the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) only on “substantial questions of law” – Chartered Accountants and Company Secretaries, specialists in understanding and explaining issues pertaining to accounts – They can assist purely on facts – Their appearance before NTT on behalf of a party – Unacceptable in law – Held, Section 13(1) unsustainable in law. (Para 76)

       (1997) 11 SCC 687; (2002) 6 SCC 252; (1968) 3 SCR 662; (1897) AC 615; (1976) 1 SCC 496; (1964) 1 All E.R. 791; (1987) 1 SCC 183; (1997) 5 SCC 536; (2002) 4 SCC 275; AIR 1975 Delhi 323; (2003) 2 SCC 412 – Referred

       (h) National Tax Tribunals Act, 2005 – Section 5(2) – Appellate jurisdiction vested in High Courts can be substituted by constituting courts/tribunals to exercise the said jurisdiction – However, the redress should be available with the same convenience and expediency as with High Courts – Remedy to litigants under the Act from NTT conducting its sittings ordinarily in National Capital Territory of Delhi would be inefficacious – Unacceptable in law. (Para 80)

       (1987) 1 SCC 124; (1997) 3 SCC 261 – Relied upon

       (i) National Tax Tribunals Act, 2005 – Section 5 – Role of Central Government in determining sitting of benches of NTT and transfer of Members – Central Government a stakeholder in each and every appeal/case – Not appropriate to allow Central Government to play any role with reference to location, territorial jurisdiction, composition and constitution of Benches, as also, transfer of the Members from one bench to another – Provisions not ensuring total insulation from all forms of interference, pressure or influence from co-ordinate branches of Government – Not sustainable in law- Held, sub-sections (2), (3), (4) and (5) of Section 5 of the NTT Act are unconstitutional. (Para 80, 81)

       (j) National Tax Tribunals Act, 2005 – Section 6(2)(b) r/w section 24 – Appointment of Chairperson and Members – NTT vested with powers and function to adjudicate on substantial question of law on Family Law, Hindu Law, Mohemmedan Law, Company Law, Law of Partnership, Law relating to Territoriality, Law relating to Trusts and Societies, Contract Law, Law relating to Transfer of Property, Law relating to Intellectual Property, Interpretation of Statutes/Rules, and other Miscellaneous Provisions of Law, besides interpretation of provisions of Income Tax Act, the Customs Act and the Excise Act – Accountant Members or Technical Members of Income Tax Appellate Tribunal or Customs, Excise and Service Tax Appellate Tribunal for at least 5 years eligible for appointment as Member NTT – Function NTT not involving any specialized skill, knowledge or expertise – Appointment of non-Judicial Members would constitute delusion and encroachment upon the “independence of judiciary”, and the “rule of law” – Section 24 providing for appeal to Supreme Court from orders of NTT thereby ousting jurisdiction of judicial review by High Courts – NTT being vested with adjudicatory powers of High Courts must be manned by judges/ members whose stature and qualifications are commensurate thereto – Section 6(2)(b) of the NTT Act declared unconstitutional. (Para 83, 84, 85, 86)

       (1997) 3 SCC 261; (2010) 11 SCC 1 – Relied upon

       (k) National Tax Tribunals Act, 2005 – Section 7 – Selection process of Members and Chairperson of NTT – Adopting procedure in L. Chandra Kumar – That case involving Administrative Tribunals which are subservient to High Courts – NTT on other hand replaces High Courts – Same procedure cannot be adopted – Rather, procedure for selection of High Court Judges should be adopted – Secondly, selection committee consisting of Secretaries of Departments of Central Government which invariably would be a party before NTT – Central Government or its officials cannot be involved in selection process for Members or Chairperson of NTT – Section 7 declared unconstitutional. (Para 87, 88)

       (2010) 11 SCC 87; 1976 All ER Vol. (1) 353 – Relied upon

       (1997) 3 SCC 261 – Referred

       (l) National Tax Tribunals Act, 2005 – Section 8 – Appointment of Chairperson/Member for 5 years in first instance – Eligible for re-appointment – Re-appointment provision having effect of undermining independence of the Chairperson/Members – Section 8 declared unconstitutional. (Para 89)

       (m) National Tax Tribunals Act, 2005 – Constitutional validity – Sections 5, 6, 7, 8 and 13 of the NTT Act having been held illegal and unconstitutional – In absence of these provisions, remaining provisions have been rendered otiose and worthless – Therefore provisions of the Act, as a whole, set aside. (Para 90)

       Per R.F. Nariman, J. (concurring in the result)

       (n) Constitution of India – Article 227 – High Court’s power of superintendence over all subordinate courts and tribunals under its jurisdiction – No restriction as to its appellate jurisdiction – High Court under Article 227 is required to correct errors of law apparent on the face of record and in the process to state the law binding the subordinate courts and tribunals – To answer substantial questions of law is core of the judicial function –High Courts have been discharging this function traditionally – Code of Civil Procedure, 1908 – Section 100. (Para 13, 15, 16, 20)

       1954 SCR 565; (1963) 3 SCR 338; (1962) Suppl. 3 SCR 549 – Relied upon

       (1997) 5 SCC 536 – Distinguished

       (o) NTT Act – NTT vested with powers to adjudicate on substantial questions of law on tax matters – Such matters also involve many areas of civil and criminal law, for example Hindu Joint Family Law, partnership, sale of goods, contracts, Mohammedan Law, Company Law, Law relating to Trusts and Societies, Transfer of Property, Law relating to Intellectual Property, Interpretation of Statutes and sections dealing with prosecution for offences – NTT postulated to lay down law for whole of India binding all other authorities and tribunals – Incorrect on the face of it because NTT made subordinate to Supreme Court whose decisions shall prevail as against NTT decisions – Direct encroachment on High Court’s power under Article 227 of Constitution – Secondly, State invariably being a party in tax matters, High Court is ideally suitable to decide substantial questions of law. (Para 31, 32)

       (1963) 3 SCR 338; (1978), Vol.86 DLR [3d] 161; 123 DLR (3d) 554; 1976 (1) All ER 353 – Relied upon

       (1997) 3 SCC 261 – Referred

       (2010) 11 SCC 1 – Distinguished

       (p) Administration of Justice – Appeal and judicial review – Power of appeal being creature of statute can be done away by statute – Jurisdiction to decide substantial question of law vested only with High Courts and Supreme Court by Constitution – Cannot be vested in any other body – Constitution of India – Article 226/227. (Para 37)

       (1997) 3 SCC 261; (2010) 3 SCC 571; 1931 AC 311 – Relied upon

       Facts of the case:

       The issue arising for consideration in the present bunch of cases pertains to the constitutional validity of the National Tax Tribunal Act, 2005. Simultaneously, the constitutional validity of the Constitution (Forty-second Amendment) Act, 1976 has been assailed, by asserting, that the same violates the basic structure of the Constitution of India, by impinging on the power of “judicial review” vested in the High Court. In the event the aforementioned prayers are not acceded to, a challenge in the alternative, has been raised to various provisions of the NTT Act, which has led to the constitution of the National Tax Tribunal. The NTT according to the learned counsel for the petitioners, is styled as a quasi-judicial appellate tribunal. It has been vested with the power of adjudicating appeals arising from orders passed by Appellate Tribunals. Hitherto before, the instant jurisdiction was vested with High Courts. The pointed issue canvassed in this behalf is, that High Courts which discharge judicial functions, cannot be substituted by an extra-judicial body. Additionally, it is maintained that the NTT in the manner of its constitution undermines a process of independence and fairness, which are sine qua non of an adjudicatory authority.

       

       Finding of the Court:

       The NTT Act, 2005 is unconstitutional.

       Result: Provisions of NTT Act, 2005 set aside.