This article is written by Trisha Prasad. The article analyses the pivotal Supreme Court judgement of Madras Bar Association vs. Union of India (2014) which forms a part of a series of judgements that discuss the concept of tribunals and tribunal reforms. This article discusses the significance of the judgement in the context of the basic structure doctrine, power of judicial review and separation of powers.

Introduction 

The Supreme Court, in the case of Madras Bar Association vs. Union of India (2014), decided on 25th September 2014 to declare the National Tax Tribunal Act, 2005 (the ‘2005 Act’), which established a National Tax Tribunal, unconstitutional and struck it down. This case forms a part of a series of cases (all titled, “Madras Bar Association vs. Union of India” in the years 2014, 2015, 2020 and 2021) initiated by the Madras Bar Association, challenging all attempts made to create an executive-dominated tribunal system on the grounds that it impedes the independence and integrity of the judiciary and system of justice as well as the concept of separation of power in India.

The 2005 Act was enacted with the aim of streamlining the adjudication process in relation to tax disputes and reducing the burden on the High Courts in India. However, the Apex Court found various provisions of this Act from the establishment of the National Tax Tribunal to its composition and appointment process to be unconstitutional and hence invalid in the eyes of law. The court declared that the main provisions of the Act were infringing on the jurisdiction of the High Court as well as providing more powers, concentrated in the hands of the executive, thereby violating the principle of separation of powers as well as the independence of the judiciary. The basic structure of the constitution was held to be violated by the provisions of the 2005 Act which was in effect struck down by the Apex Court’s decision in this case. 

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This article will analyse the judgement of the Supreme Court in this case while also examining and providing an overview of the concept of separation of powers, judicial review and the basic structure doctrine.

Details of the case

Parties:

  • Petitioner: Madras Bar Association
  • Respondent: Union of India

Case no: Transferred Case (Civil) No. 150 of 2006

Equivalent citations: AIR 2015 SC 1571, 2015 AIR SCW 1270, AIR 2015 SC (Civil) 1154

Court: The Supreme Court of India

Bench: Justice R.M Lodha (former Chief Justice of India), Justice Jagdish Singh Khehar, Justice Chelameswar,  Justice A.K. Sikri, Justice Rohinton Fali Nariman

Decided on: 25th September, 2014

Statutes/ Laws involved:

Background of the case

The National Tax Tribunal Act, 2005 was enacted by the Parliament as a part of the government’s effort to streamline the adjudication of tax-related disputes, eliminate delay in the disposal of such disputes and reduce the burden on the court, which would in turn reduce the pendency of cases before the High Courts. Prior to the enactment of the National Tax Tribunal Act,2005, the power to decide appeals from any decision of the Appellate tribunal set up under the Income Tax Act,1961, Central Excise Act, 1944 and Customs Act,1962, vested exclusively in the High Courts, provided that there was a substantial question of Law involved. Section 260A of the Income Tax Act, Section 35G of the Central Excise Act and Section 130 of the Customs Act, all of which provided the High Court with the abovementioned appellate powers were amended by the 2005 Act, transferring the same appellate powers to the National Tax Tribunal which was sought to be established under the Act.

The necessity of establishing a national tribunal for taxes was first suggested in the 12th report of the Law Commission. This recommendation was however not accepted and the existing appellate tribunal under the Income Tax Act continued to function. A similar suggestion was made once again in 1970 by a Direct Tax Inquiry Committee (Wanchoo Committee) set up by the government. This committee recommended the establishment of tax benches in the High Courts, to be preceded by a retired judge. At this stage, there already were a large number of tax cases pending before the judiciary. Subsequently, another Direct Tax Inquiry Committee (Choksi Committee) that was set up in 1977 suggested the establishment of a Central Tax Court. This recommendation too never saw the light of day.

Finally, in the early 1990s, a similar recommendation was made leading to the issue of the National Tax Tribunal Ordinance, 2003 which subsequently led to the enactment of the National Tax Tribunal Act, 2005 after the bill for the same was deliberated in the parliament in 2004.

Facts of Madras Bar Association vs. Union of India (2015)

This case brought before the Supreme Court by the Madras Bar Association was a culmination of various petitions and transferred cases (as mentioned below) which were all brought before various Indian courts by different petitioners. These petitions and cases that challenged the validity of the National Tax Tribunal were consolidated and disposed of by this court’s decisions in the present case of Madras Bar Association vs. Union of India.

  • Transferred Case (civil) Nos. 150,116,117 and 118 of 2006
  • Civil Appeal nos. 3850,3862,3881,3882, 4051 and 4052 of 2006
  • Writ Petitions Nos. 621 and 697 of 2007

These cases primarily challenged the validity of the National Tax Tribunal Act, of 2005. Simultaneously, the 42nd Constitutional Amendment Act,1976 was challenged on the ground that it violated the basic structure of the Indian Constitution, specifically highlighting the concept of Judicial Review and separation of powers.

This issue arose as the National Tax Tribunal that was to be established under the National Tax Tribunal Act was vested with powers to hear and decide appeals against any substantial question of law that arises from decisions of appellate tribunals established under three statutes including Income Tax Act,1961, Central Excise Act, 1944 and Customs Act,1962.

Additionally, Article 323-B which was inserted by the 42nd Constitutional Amendment was alleged to be unconstitutional on the grounds that it violates the principles of separation of powers, rule of law and the powers of judicial review by an independent judiciary which constitute a part of the basic structure of the constitution.

Issues raised in the case

  • Constitutional Validity of the National Tax Tribunal established under the National Tax Tribunal Act,2005.
  • Constitutional Validity of the Constitution (Forty Second) Amendment Act, 1976.

Arguments of the parties

Petitioner

The contentions that were put forth by the petitioner can be understood under four main points of argument.

Firstly, the petitioner argued that the very reason and foundational basis for setting up the National Tax Tribunal was fallacious and not valid. Hence, it is pertinent to have the Act as well as the establishment of the tribunal struck down. The reasoning behind the setting up of the tribunal was entirely based on the claim that there is inconsistency in the current jurisprudence of the High Court’s exercise of power as well as the inadequacy of the High Court to deal with and dispose of appeals in relation to taxes. The petitioner argued that these claims were unfound and that there was neither inconsistency in the existing jurisprudence nor any evidence to prove the inadequacy of the High Courts. The petitioner also argued that the mere establishment of the National Tax Tribunal will not lead to any guaranteed uniformity in decisions related to taxes. Furthermore, the 2005 Act provides for a direct appeal to the Supreme Court against any decision of the National Tax Tribunal under Section 24 of the Act. This provision completely bypassed the role of the High Court in the judicial hierarchy in India and if implemented would increase the burden of cases on the Supreme Court. It was also emphasised that the recommendations that were put forth by the select committee which reviewed the Bill before the enactment of the 2005 Act were ignored. The committee has raised concerns regarding the effect of the bill on judicial independence, the qualification requirement of the members of the proposed tribunal and the potential overburdening of the Supreme Court. However, these reservations and concerns raised by the select committee were not taken into consideration by the parliament and the 2005 Act was enacted without incorporating any of the recommendations of the committee.

The second argument put forth by the petitioner was in relation to the appellate powers that were vested in the National Tax Tribunal by the 2005 Act, effectively taking away the powers that were previously vested in the High Courts. The petitioner argued that the legislature did not have the power to abrogate or divest the superior courts of this appellate jurisdiction and the transfer of such power to the tribunal was liable to be set aside. Additionally, the petitioner also argued that the 2005 Act, violated the High Court’s power of judicial review under Articles 226 and 227 of the Constitution. The original jurisdiction of the High Courts under Articles 226 and 227 which includes the power to issue writs, direction and orders for the protection of the rights of individuals as well as the right of superintendence over all courts and tribunals instituted or established within its own territorial jurisdiction, were contended to be disturbed by the introduction of the 2005 Act which effectively took away and transferred the powers that were earlier vested in the High Courts by the Constitution. The petitioner also argued that decisions in relation to any substantial question of law even in specialised matters must be determined by a superior court like the High Courts of the Supreme Court.

The petitioner specifically challenged Sections 5,6,7,8 and 13 of the 2005 Act on the grounds that the said provisions hindered the independence of the adjudicatory process of the Tribunal. This contention was wholly based on the fact that the central government had the sole authority in relation to the establishment, composition, constitution and appointments of the tribunal and its officers. The Central Government was the sole authority for establishing the Tribunal under Section 3 of the 2005 Act. Determination of the composition of the tribunal, the number of members to be appointed to the tribunal and the number of benches as well as the jurisdiction and location of these benches of the tribunal were all exclusive powers of the central government under Sections 4 and 5 of the Act. Furthermore, it was also pointed out that, Section 7 of the Act, in effect, provides the Central Government with the power to appoint the chairperson and members of the tribunal. Despite the fact that a selection committee is to be appointed under Section 7, the composition of the committee which includes the Chief Justice of India and two secretaries of ministries of the central government, portrays the advantage that the central government will have in the selection or appointment process. These provisions of the Act clearly violated the necessity of ensuring the separation of powers between the executive and the judiciary which has been given importance in order to protect the rights of individuals and secure justice for all.

Lastly, the petitioners challenged the constitutionality of Article 323B of the Indian constitution to the extent that it violated the principles of separation of powers, rule of law and the power of judicial review which were argued to constitute, among others, the basic structure of the Indian Constitution. The petitioners also specifically prayed for striking down Article 323B(4) of the Constitution, a non-obstante clause which in effect allows Article 323B to have an overriding effect over any other conflicting provision or law in force.

The petitioner put forth arguments challenging the constitutional validity of the 2005 Act in its entirety as well as the 42nd Amendment Act on the grounds that the basic structure of the constitution had been violated as the power of judicial review of the High Courts had been infringed. Alternatively, in the event that the above-mentioned prayers were not agreed upon by this Apex Court, the petitioners challenged the Constitutional validity of specific provisions or Sections of the 2005 Act (Sections 5,6,7,8 and 13)  that established and governed the institution and basic functioning of the National Tax Tribunal.

Respondent

The respondent countered the petitioner’s arguments by attempting to justify the reason for setting up the National Tax Tribunals as well as the powers of the parliament to make and enact the 2005 Act. The council also firmly refuted the claims that the establishment of the tribunal was not in violation of the principles of separation of powers and judicial review. The respondent backed this argument by discussing the alarming number of pending tax disputes and the general burden on the judiciary as well as reasons for prolonged litigation in relation to tax disputes. The counsel for the respondent also specifically attributed the pendency to the lack of clarity in law for tax litigation with additional emphasis on the situation of conflicting opinions and multiplicity of proceedings due to the existence of multiple appellate levels and the role of the High Courts.

In response to the second contention of the petitioner against the alleged abrogation of appellate powers traditionally vested in the High Court, the respondent was of the opinion that the petitioner did not approach the matter with the correct perspective. They contended that the petitioner had misunderstood the purpose, structure and status of the 2005 Act. The respondent argued that the appellate jurisdiction in question here is merely statutory rights and liabilities created by specific statutes like the Income Tax Act and that such remedies or liabilities do not exist in common law. It was on this ground that the respondent claimed that due to the absence of specific remedies in common law, common law courts cannot be approached, as a norm, to enforce such remedies. It was further contended that, like the existing tax statutes as well as other special legislations that have their own grievance redressal mechanism, the legislature has the power to have provisions for the creation of specialised tribunals or courts through a specific statute, for matters specific to that statute. The National Tax Tribunal, it was argued, is a specialised tribunal or body that will have the necessary expertise in handling complex tax-related matters. It was hence, the respondent’s contention that the intention of the 2005 Act was not to abrogate core functions of the High Courts but to establish a specialised tribunal to deal with tax-based disputes more efficiently.

The respondents also argued that according to Article 246 of the Constitution, the parliament has the power to make laws with respect to any subject matter that is enumerated under either List I (Union List) or List III (Concurrent List) of the Constitution. It was submitted that as per entries 78 and 79 (refer to schedule 7 for all entries) under the Union List, the parliament has the power to make laws or rules in relation to the powers and jurisdiction of High Courts. Further, it was also argued that entries 82 to 84 and entry 97 permitted the parliament to make laws related to tax and the extent of jurisdiction in tax-related matters. The claims of the petitioner were firmly opposed by the respondents through this argument. The respondent also argues that the parliament has the power, pursuant to Article 247 to establish new courts and determine their jurisdiction for better administration of justice.

In opposition to the argument put forth by the petitioner against Article 323-B and violation of the power of judicial review, the respondent emphasised that a statutory right to appeal to the Apex Court has been provided under the Act and that the Judicial review powers of the High Courts under Articles 226 and 227 and that of the Supreme Court under Articles 32 and Article 136 have not been hampered. The counsel for the respondents argued that the grounds of challenge cited by the petitioner were misconceived, fallacious and hence unacceptable. However, despite these contentions that were put forth by the respondents, the then Attorney General of India, Mukul Rohatgi, was willing to positively view any suggestions that were made by the Supreme Court in this matter and bring about changes to the provisions of the 2005 Act that were challenged by the petitioners.

Laws involved in Madras Bar Association vs. Union of India (2015)

Basic structure doctrine

The basic structure doctrine can be simply understood as referring to certain features, principles and provisions that form the core of the Indian Constitution. These features are intrinsic to the very basic structure and objective of the Indian Constitution and hence cannot be altered, amended or removed from the Constitution. The initial judicial evolution of the basic structure doctrine can be traced back to the judgements pronounced in the cases of Sankari Prasad Singh Deo vs. Union of India (1951), Sajjan Singh vs. State of Rajasthan (1964) and I.C Golaknath & Ors. vs. State of Punjab (1967) until the primary and basic foundation of the doctrine was laid down in the Kesavananda Bharati vs. State of Kerala (1973) case. There have been a number of cases that subsequently reaffirmed and strengthened the decision that was delivered in the Kesavananda Bharati Case. It has been determined that the basic structure of the Constitution includes the following principles and provisions:

  • Supremacy of the Constitution;
  • Preamble and all concepts and features included in the preamble;
  • Rule of law;
  • Independence of the judiciary;
  • Separation of powers;
  • Judicial Review;
  • Fundamental Rights;
  • Directive Principles of State Policy (balanced with the fundamental rights).

The present case of Madras Bar Association vs. Union of India specifically discussed the basic structure doctrine in the context of separation of powers, judicial review and rule of law.

Separation of powers

The doctrine of separation of powers refers to the division of duties or functions among different branches or organs of the government (executive, legislature and judiciary) in a manner that limits each organ or branch to the functions that are allotted to it and prevents unnecessary overlapping of duties. As introduced by Montesquieu and further enhanced by modern governance systems, separation of power is based on three main features:

  • A person who forms a part of one organ cannot form a part of another organ;
  • An organ should not exercise the functions that are vested in another organ;
  • An organ should not interfere with the functioning of another organ.

In the Indian context, while the doctrine of separation of power is a critical constituent of the basic structure of the Constitution, it is not followed as strictly as in countries like the United States of America. India follows a system of checks and balances which allows for review of the action or permits imposition of some limitations by one organ on the other, like judicial review and a no-confidence motion, in order to ensure that the principles of the Constitution are followed.

Judicial Review

Judicial review is the process by which the judiciary (Supreme Court under Article 32 or High Courts under Article 226) determines the constitutionality of any legislative action or law that is passed by the parliament. It also includes the power to examine the constitutionality of executive actions or actions by the administrative bodies of the government.

National Tax Tribunal Act,2005

  • Section 5 provided for the constitution as well as the jurisdiction of the National Tax Tribunal that was sought to be established under this Act. According to this Section, the jurisdiction of the tribunal, its seat, the number of required benches and the transfer of members from one bench to another bench will be determined by the Central Government in consultation with the Chairperson who is appointed by the Central Government.
  • Section 6 lays down the qualifications required to be fulfilled by any person being appointed as the Chairperson or member of the tribunal. According to this Section, any person who has been the Chief Justice of a High Court or a judge of the Supreme Court is qualified to be appointed as the chairperson of the tribunal. The Section further states that, in order to be qualified to be appointed as a member of the tribunal, the concerned person must fulfil one of the two below-mentioned criteria:
  1. The person is, has been or is eligible to be a judge of a High Court (or);
  2. The person is or has been a member, for at least five years, of the Income Tax Appellate Tribunal or Customs, Excise and Service Tax Appellate Tribunal.
  • Section 7 contains the procedure to be followed for the appointment of a chairperson and members of the tribunal. According to this Section, the central government appoints the chairperson or member on the recommendation of a selection committee consisting of the Chief Justice of India (or any Supreme Court judge) and two secretaries of central government ministries (Ministry of Law and Justice and Ministry of Finance). However, an appointment made in the absence of any of the abovementioned selection committee members is also considered valid.
  • Section 8 specifies the term of office of any chairperson or member of the tribunal. The member or chairperson serves a term of 5 years and is eligible to be reelected for another 5-year term.
  • Section 13 states that a person may be represented before the tribunal either by a legal practitioner or a Chartered Accountant.

Indian Constitution

  • Article 323B was inserted in the Constitution by the 42nd Amendment Act in 1976. This article permits the legislature to set up specialised tribunals for adjudicating disputes related to specific matters including taxation, foreign exchange, industry and labour disputes, land reforms, elections, etc.
  • Article 226 conferred on the High Courts, the power to issue writs, directions and orders for protecting and enforcing the fundamental and legal rights of individuals as guaranteed by the Indian Constitution.
  • Article 227 of the Constitution gives the High Courts the power of superintendence over other courts and tribunals that function within the territorial jurisdiction of the concerned High Court.
  • Article 32 allows individuals to approach the Supreme Court for the purpose of enforcing the Fundamental Rights that are guaranteed to them. Similar to Article 226, the Supreme Court can issue writs, orders and directions to enforce these fundamental rights.

Relevant judgements referred in the case

Sir Chunilal V. Mehta vs. The Century Spinning and Manufacturing Co. Ltd (1962)

The meaning of the term “substantial question of law” was determined in this case. According to the Apex Court in this case, in order to determine if an issue is a substantial question of law, it must first be determined if it is a matter of general public importance or significantly affects the rights of the parties. The question of law must be either not decided by the superior courts or of such a complex nature that it is open to multiple interpretations. If at all the question of law that is brought before the court is already decided by the superior courts or is related to established principles of law, the concerned question would not be classified as “substantial”.

Kesavananda Bharati vs. State of Kerala (1973)

The landmark case of Kesavananda Bharati vs. the State of Kerala (1973) is an important case that must be analysed while dealing with matters related to the basic structure doctrine. This case was brought before the court, challenging the 24th Constitutional Amendment Act, 1971 and the 25th Constitutional Amendment Act, 1971. This case was instrumental in the establishment of the concept of the basic structure of the Constitution. The power of judicial review that is vested in the superior courts by the Constitution as well as the concept of separation of powers, among others, were held to be essential components of the Constitution’s basic structure. It was also firmly observed that the basic structure of the Indian Constitution cannot be altered by the parliament in the exercise of its power to amend under Article 368 of the Constitution.

Indira Gandhi Nehru vs. Shri Raj Narain (1975) 

The constitutionality of the 39th Constitutional Amendment (1975) was analysed in this case. The amendment had, among other provisions, added Article 329A (now repealed) which removed the question of the validity of the election of a prime minister or speaker of the parliament from the purview of judicial review. In this context, while also affirming the decision given by the court in the case of Kesavanada Bharati vs. State of Kerala (1973), the 5-judge-bench held the above-mentioned provision to be violative of both judicial review powers as well as the principle of separation of powers. The bench also emphasised that the term “amendment” under Article 368 cannot be used in a manner that alters, destroys or undermines the basic structure of the Constitution.

Minerva Mills vs. Union of India (1980)

The provision of the 42nd Constitutional Amendment that permitted the exclusion, from judicial review, of any law that was enacted in furtherance of the Directive Principles of State Policy (DPSP), even if it is in violation of Fundamental Rights, was challenged in this case. Following the decision of this case it is now a well-settled position of law that the power of judicial review is an essential part of the basic structure of the Indian Constitution and no law or amendment made by the parliament can effectively take away or undermine this power that is vested in the superior courts. It was also observed during the course of the proceedings that it is permissible for the parliament to set up alternative institutional mechanisms or similar arrangements for the exercise of judicial review, separate from the High Courts and Supreme Court. However, the alternative must be an absolute substitute, effective and efficient in conforming with the principles and requirements of the Constitution.

L. Chandra Kumar vs. Union of India (1997)

The court had in this case struck down Article 323A and Article 323B that were added by the 42nd Amendment (1976) to the Constitution to the extent that it completely excluded the powers of judicial review available to the superior courts under Articles 226,227,32 and 136. The impugned provisions in this case permitted the parliament to withdraw the power of judicial review from all courts except for the Supreme Court under Article 136. The Apex Court also addressed the question as to whether any tribunal established under Articles 323A and 323B are effective substitute to exercise the power of judicial review vested in the High Courts. In this regard, the court observed that while the powers vested in the High Courts and Supreme Courts are an indispensable part of the basic structure of the constitution, tribunals or other courts may be set up to perform a supplementary role in the discharge of the powers vested under Article 226, 227 and 32. These decisions will however be subject to scrutiny of a division bench of the High Court and the tribunals will continue to function as the courts of first instance in relation to matters that fall within the ambit of their specialised subject matter jurisdiction.

Union of India vs. R. Gandhi (2010)

In this case, Chapters 1B and 1C of the  Companies Act,1956 which provided for the creation of the National Company Law Tribunal and National Company Law Appellate Tribunal respectively were challenged. The impugned provisions sought to replace the company’s board with a tribunal with original jurisdiction and replace the High Court with an appellate tribunal. The bench in this case, while analysing the concept of independence of judiciary and separation of powers observed that apart from the powers and jurisdictions specifically conferred on superior courts by the Constitution, other powers and functions of the High Courts can be determined by legislative action. Any power to hear any matter or an appeal that is conferred on High Courts by specific legislations can be taken away by deleting the concerned provisions. At the same time, it was also observed that the Constitution permits the parliament to establish tribunals and transfer or confer powers to determine disputes to these tribunals and hence, parliament has the power to transfer certain judicial functions to tribunals and other courts. However, the parliament must ensure that the independence of the judiciary as well as the principle of separation of powers are maintained. It was also emphasised that in order to maintain the independence of the judiciary, any issue that involves the government must be dealt with by judges who are independent of the government.

(The court in the present case of Madras Bar Association vs. Union of India dismissed the reliance on the R. Gandhi case as the latter dealt with the substitution of one tribunal by another while the former dealt with the substitution of the High Court by a Tribunal)

Judgement in Madras Bar Association vs. Union of India (2015)

The 5-judge bench of the Supreme Court in its judgement broadly observed and declared the following:

  • The parliament has the power to establish new courts and tribunals or transfer powers that were earlier vested in the High Courts to such other courts and tribunals without it being deemed to violate the basic structure of the Constitution. However, care must be taken to ensure that the alternative court or tribunal conforms with the basic characteristics and standards of the court that it wishes to replace.
  • Sections 5,6,7,8 and 13 of the 2005 Act are unconstitutional and thereby invalid. These provisions formed the foundation of the 2005 Act and without these provisions, the Act will be ineffective. Hence, the 2005 Act as a whole was deemed to be unconstitutional.

The rationale behind the judgement passed by the Apex Court can be understood under the following two heads:

Basic structure and National Tax Tribunal Act,2005 and transfer of powers to the tribunal

The Apex Court examined the relation between and impact of the 2005 Act on the concept of judicial review and separation of powers in order to determine whether or not the basic structure of the Constitution has been violated by the Act. Subsequent to analysing prominent precedents in relation to the basic structure doctrine, the court concluded that the exclusion of judicial review by any law or provision of law is violative of the basic structure of the Indian Constitution. The Supreme Court was however of the opinion that the power of judicial review of the High Courts under Articles 226 and 227 of the Constitution was not ousted and hence, the argument claiming the violation of the basic structure doctrine on the basis of the power of judicial review was not accepted. In this regard, the National Tax Tribunal was held to be deemed to be discharging a supplemental role. However, violation of the basic structure in the context of separation of powers and independence of judiciary was upheld. Additionally, the Apex Court held that the parliament has the power to establish new courts or tribunals and vest such powers as were earlier vested with High Courts in these newly constituted courts or tribunals without it automatically violating the basic structure of the constitution. However, the basic structure of the Indian Constitution stands violated if the parliament fails to ensure that the concerned alternative or new court or tribunal conforms with the basic characteristics, rules, procedures, customs, conventions and practices and standards of the original court or the court to be substituted (High Court in this case). The court, while holding the National Tax Tribunal to be unconstitutional, observed that the basic characteristics and standards of the tribunal were not in line with the High Court that it sought to replace.

Furthermore, In order to determine whether the transfer of adjudicatory function to the tribunal was constitutional, the court first attempted to determine whether the power that was sought to be transferred was a core judicial appellate function that was traditionally vested in the High Courts. The Apex Court analysed the historical perspective of tax-related legislation and determined that appeals-related taxes in cases where a substantial question of law was present have traditionally been a power vested in the High Courts. The first adjudicatory authority has traditionally been an executive appellate adjudicatory authority like the Income Tax Appellate Tribunal or the Customs, Excise and Service Tax Appellate Tribunal. The power to hear appeals from the decisions of these appellate tribunals has always been vested in the High Courts. Hence, it was concluded that the core adjudicatory function of determining any question of law in tax disputes has been uninterruptedly vested in the High Courts. It was held that the National Tax Tribunal has to an extent encroached on the exclusive jurisdiction of superior courts and is hence unconstitutional.

The 2005 Act which aimed at establishing the National Tax Tribunal was enacted pursuant to the parliament’s powers under Article 323B of the Indian Constitution which was also challenged by the petitioner in this case. In relation to the challenge to Article 323B of the Constitution, the court observed that a detailed analysis or determination of the same is not required as the matter was already clarified by the Apex Court in the earlier case of L. Chandra Kumar vs. Union of India. The aforementioned case was specifically decided in relation to the Administrative Tribunal established under the Administrative Tribunals Act,1985, enacted pursuant to Article 323A. The Supreme Court scrutinised the provision of Article 323A and 323B as well as Section 6(5) of the Administrative Tribunals Act which in effect excluded the supervisory and appellate jurisdiction of the court in relation to matters that were heard by the tribunals. The jurisdiction of the High Courts was reaffirmed in the case of L. Chandra Kumar vs. Union of India which was also regarded as a precedent by the court in the instant judgement of Madras Bar Association vs. Union of India.

Validity of National Tax Tribunal Act,2005

Sections 5,6,7,8 and 13 were declared as unconstitutional and struck down and since the remaining provisions of the Act cannot be made effective without the above-mentioned provisions, the entire Act was declared to be ineffective and unconstitutional. As previously mentioned, it is necessary for the parliament in the present case to ensure that the features and functioning of the tribunal are in a manner that is in conformity with the High Courts that are effectively being replaced as appellate authorities for tax-related matters.

The Supreme Court made various observations in relation to Section 5 of the 2005 Act. Firstly, the court observed, on the basis of the petitioner’s argument regarding the inconvenience that may be faced by aggrieved persons, that instituting the Tribunal in the National Capital Territory of Delhi will create a situation where the option of seeking redressal will not be available at the same level of convenience and expediency that was earlier available. Secondly, the Apex Court determined the role of the Central Government in determining the location, jurisdiction and composition of the bench to be inappropriate and violative of the independence of the judiciary owing to the fact that the Central Government will inevitably be a stakeholder in each and every case that may be brought before the tribunal.

The court observed that the qualifications for the composition of the tribunal as provided under Section 6 of the Act allowed for technical members of the Income Tax Appellate Tribunal or the customs, excise and service tax Appellate tribunals with at least 5 years of experience to be eligible to be appointed as members of the National Tax Tribunal. It was observed that these members lacked the legal expertise or knowledge that members of the National Tax Tribunal would be faced with while adjudicating tax disputes. In this regard, the Apex Court expressly held Section 6(2)(b) to be unconstitutional and invalid.

Further, while invalidating Section 7, the court observed that one of the parties to any matter that is heard by the tribunal will inevitably represent the interests of the Central Government. It would hence not be fair to follow the procedure of appointment of members or chairperson of the tribunal as provided under Section 7 which requires the involvement of the Secretaries of the Ministry of Finance and the Ministry of Law and Justice. Lastly, Section 8 was invalidated on the grounds that it permitted for the re-appointment of the chairperson or member of the tribunal after the completion of their 5-year term. It was held that such a provision for re-appointment would hamper the ability of the chairperson or member to act in an independent manner, thereby undermining the fairness and independence of the said member or chairperson of the tribunal.

Section 13 of the Act was held to be unconstitutional to the extent that it permitted parties to be represented before the tribunal by Chartered Accountants on the grounds that they lacked legal expertise beyond the area of accounts and basic company-related laws. In cases where other laws including family laws, civil laws or property laws may arise, Chartered Accountants would not have the necessary knowledge and expertise to deal with the dispute and effectively represent the parties.

Critical analysis of the case

The observations made by the Supreme Court in this case and the final judgement that was delivered by the bench promote the need for a transparent process of appointment of members to any tribunal and highlight the need to ensure that there are sufficient safeguards against undue influence of the government in the appointment process. Hence, the fact that a majority of the members of the selection committee for appointment of the chairperson and members of the tribunal as provided for under the 2005 Act were representatives of the government was frowned upon by the bench and dismissed as being unconstitutional. The judgement in this case also sheds light on the necessity to structure a tribunal in a manner that reflects the fairness and impartiality standards that are expected from traditional courts that the tribunal seeks to replace.

The judgement given by the 5-judge bench of the Apex Court on 25th September 2014 not only reaffirms the basic structure doctrine while emphasising the importance and scope of both judicial review and separation of powers but also played an important role in the series of cases in relation to the ongoing debate on tribunal reforms. The judgement has contributed to the existing tribunal reforms jurisprudence by clarifying the constitutional limits of the legislature that must be adhered to while setting up tribunals. It is apparent that while judicial reforms are encouraged, the judiciary’s role in ensuring constitutionality and protection of rights throughout the process of reform must be upheld.

By declaring the National Tax Tribunal Act,2005 to be unconstitutional and ineffective, the Supreme Court established that while the parliament has the authority to establish specialised tribunals to deal with specific subject matters with the aim of effectively delivering justice, these bodies must maintain the independence and characteristics that are consistent with judicial body or court that it aims effectively replace. The decision of the court, in this case, highlights the judiciary’s commitment towards maintaining the basic principles enshrined in the Indian Constitution. The importance of ensuring an independent judiciary that is free from unnecessary external influence for the purpose of effective justice delivery has been reinforced.

Pursuant to this judgement, it can be concluded that in order to avoid any issues or challenges raised against ongoing reforms, sufficient efforts must be made to ensure a transparent appointment process, the clear establishment of jurisdictions of tribunals on one hand and superior courts on the other, establishment of adequate safeguards against government interference in the judicial process and conscious alignment of enactments with the established principles of the Indian Constitution.

Conclusion

In conclusion, the judgement delivered in the case of the Madras Bar Association vs. Union of India (2014) is a landmark decision that fortifies the basic structure of the Indian Constitution, reaffirming the various principles laid down in this regard by the judiciary through its past decisions. The Supreme Court struck down various provisions of the 2005 Act in order to ensure and protect the principles of separation of powers, judicial review and independence of the judiciary. The court, by way of this judgement, reasserted the necessity for any legislation that may encroach upon the core functions of the judiciary to be modelled in a manner that upholds the strict impartiality of judicial processes and maintains the integrity of the justice mechanism.

Frequently Asked Questions (FAQs)

What is a Tribunal?

A tribunal is a quasi-judicial body that is established to adjudicate specific disputes, based on a specific subject matter or industry within its designated jurisdiction. Tribunals are specialised forums, generally established with the aim of ensuring efficiency and speed in resolving disputes, especially in cases where subject matter expertise is required. These bodies generally play an important role in reducing the burden on traditional courts. Tribunals that are currently functioning in India include:

  • Income Tax Appellate Tribunal
  • National Green Tribunal
  • Securities Appellate Tribunal
  • National Company Law Tribunal and National Company Law Appellate Tribunal
  • Telecom Dispute Settlement and Appellate Tribunal
  • Debt Recovery Tribunal, etc.

What provisions of the Indian Constitution deal with tribunals?

Articles 323A and 323B were inserted by the 42nd Constitutional Amendment Act. Article 323A specifically provides for the establishment of administrative tribunals by the parliament to adjudicate disputes related to the appointment and conditions of service of those people who are appointed to the central or state public services. Article 323B provides further powers to the parliament to establish any other tribunal other than the administrative tribunals. This Article specifically provides examples of some areas for which disputes tribunals may be established including taxation, foreign exchange, industrial and labour issues, elections, etc.

What is the significance of the principles established in this case in relation to tribunal reforms?

The principles that have been established and reaffirmed in this case are broad in nature and can be made applicable to other tribunals that may be established under other statutes, regardless of the subject matter that the tribunal deals with. The border principles and concepts of basic structure doctrine, judicial review, separation of powers and rule of law as discussed in this case have important implications under the field of Constitutional Law. Any statute that is enacted within the Indian territory must be in conformity with the Indian Constitution. The principles discussed and reaffirmed in this case will be applicable to any other tribunal or similar statute that is in force or may be enacted in the future. It is pertinent to note that since the main issue discussed in this case is the establishment and validity of a national tribunal (national tax tribunal), this case serves as a direct precedent for other cases that have come up or may be filed in the future throughout the process of tribunal reforms in the country.  

References

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