Data Drive: The NTT setback

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.