HISTORY OF JUDICIAL SYSTEM IN TAXATION

[Mr. M. GOVINDARAJAN]

In ‘Madras Bar Association V. Union of India’ – 2014 (9) TMI 821 - SUPREME COURT   the Supreme Court struck down the National Tribunal Tax Act, 2005. The Supreme Court held that the basic structure of the Constitution will stand violated, if while enacting legislation pertaining to transfer of judicial power, Parliament does not ensure that the newly created Court/Tribunal, confirms with the salient characteristics and standards, of the Court sought to be substituted.

While discussing the various provisions of National Tax Tribunal Act, the Supreme Court narrated the history of judicial system in the taxation up to the enactment of National Tax Tribunal Tax Act, 2005.   The same has been compiled in this article for the information of the readers.

Income Tax

In India legislation pertaining to levy of tax on income was introduced in the year 1860 for the first time.  The said Act was replaced by the Act in the year 1865, 1886, 1918 and 1922.  The Income Tax Act, 1922 was brought on the basis of the recommendations of the All India Tax Committee.  The said Act can be said as a milestone in the evolution of direct tax laws. In this Act, after the assessment was over an executive-appellate remedy was provided for, before the Appellate Assistant Commissioner of Income Tax under Section 30 of the Act.  Section 33A was inserted for revision before a Commissioner of Income Tax.

The remedy before the Appellate Tribunal was provided under Section 5A of 1922 Act, by means of Section 85 of the Indian Income Tax (Amendment) Act, 1939.  The Tribunal Bench comprised one Judicial Member and one Accountant Member.  It was permissible for the President of the Appellate Tribunal or any other Member thereof, to dispose of appeals, sitting singly, subject to the condition that the total income of the assessee as computed by the assessing officer did not exceed ₹ 15,000/-.  The President can also constitute Larger Benches of 3 members subject to the condition that the Larger Bench would comprise of at least one Judicial Member and one Accountant Member.

The eligibility for appointment of a Judicial Member is having a civil judicial post for 10 years, additionally an Advocate who had been practicing before a High Court for a period of 10 years.  A person who had practiced in accountancy as a Chartered Accountant for a period of 10 years, or was a Registered Accountant for a period of 10 years was eligible for appointment as an Accountant Member.  Only a Judicial Member could be appointed as the President of the Appellate Tribunal.  

The 1922 Act did not provide for an appellate remedy before the jurisdictional High Court.   Section 66 provides that either the Assessee or the Commissioner of Income tax could move an application to the Appellate Tribunal requiring it to refer a question of law to the jurisdictional High Court.  If the Tribunal refused to refer to High Court, then it may be challenged before High Court.  A case referred to High Court was to be heard by a Bench of not less than two judges of the High Court.  Section 66 was amended by the Income Tax (Amendment) act, 1939 whereby the power to make a reference became determinable by the Commissioner of Income Tax.  After the High Court had answered the reference, the Appellate Tribunal would dispose of the pending appeal in consonance with the legal position declared by the High Court. 

The Income Tax Act, 1961 replaced the 1922 Act.  In this Act an order passed by an Assessing Officer was assailable through an executive-appellate remedy vested with the Deputy Commissioner (Appeals)/Commissioner (Appeals) as stipulated in Section 246 and Section 246A of the Act respectively.   Against the order passed by the executive-appellate authority a further appeal remedy was provided before a quasi judicial appellate tribunal under Section 252.   As per Section 255(6) the Tribunal was considered as a civil court dealing with judicial proceedings. 

The President for the Tribunal should be a sitting or a retired Judge of a High Court, with not less than 7 years of service as a Judge.  The Tribunal was to be comprised of a President, Senior Vice President, Vice President and Members.  The powers of the Tribunal are of the same that of the 1922 Act.  When authorized by the Central Government, it was open to the Tribunal to dispose of appeals sitting singly, subject to the condition that the appeal pertained to a dispute, wherein the concerned assessee’s total income was assessed not exceeding ₹ 5 lakhs.  The President can constitute special benches comprising of three or more members, one of whom had to be a Judicial Member and one an Accountant Member.  In case of difference of opinion, the matter was deemed to have been decided in terms of the opinion expressed by the majority.

Section 256 provides for the Tribunal to make a reference to the High Court on a question of law.   If the said application was declined by the Tribunal the order was assailable before the High Court.  Section 257 provided for a reference directly to the Supreme Court.  The instant reference could be made by the Tribunal, if it was of the opinion, that the question of law which had arised before it had been interpreted differently, by two or more jurisdictional High Courts.  Section 260A was inserted with effect from 01.10.1998.  The said section provides for an appeal remedy before the High Court against the order of the Tribunal.  Section 260B provides that an appeal before the High Court was to be heard by a Bench of not less than two judges.   The opinion of the majority would constitute the decision of the High Court.   Where there was no majority, on the point(s) of difference, the opinion of one more judges of High Court was to be sought.   There upon the majority opinion of the Judges, including the Judges who had originally heard the case, would constitute the decision of High Court.  Further remedy was available to file appeal before the Supreme Court against the order of High Court.

Central Excise

The Central Excise and Salt Act, 1944 was enacted to consolidate and amend, the law related to central duties on excise and goods manufactured and produced in India, and to salt.  The power to assess the duty in that Act was vested with the Assistant Commissioner of Central Excise and Collectors of Central Excise.   An executive appellate remedy was provided for under Section 35 before the Commissioner (Appeals).  The Board was vested with revisional jurisdiction with effect from 1972.  The Board may exercise the power of revision from a decision/order/rule made/passed under the Act, subject to the condition that no revision would be under the instant provision, as against an appellate order passed under Section 35 of the Act, by the Commissioner (Appeals).  In 1978 the revisional power was vested with the Collector of Central Excise. 

On the exhaustion of the first executive-appellate remedy, a further remedy was provided under Section 35B of the Act to an Appellate Tribunal against an order-

• passed by  the Collector of Central Excise as an adjudicating authority;
•  passed by Collector (Appeals);
•  passed by the Board or the Appellate Collector under Section 35 of the Act; and
• passed by the Board or Collector under Section 35A of the Act.

The Appellate Tribunal was to comprise of such member of judicial/Technical members as the Central Government would think fit. Appointment of Judicial Member could only be from amongst person-

• who had held a judicial office in India for  at least 10 years; or
• who had been practicing as an Advocate for at least for 10 years; or
• who had been a member of the Indian Legal Service for at least 3 years.

Only such persons could be appointed as Technical Members who had been members of Indian Customs and Central Excise holding the post of Collector for at least 3 years.

The Central Government is having power to appoint a person, who was or had been a judge of High Court, or who was one of the Members of the Appellate Tribunal as the President of the Tribunal.  Each Bench was to consist of at least one Judicial Member and one Technical member.  In case of difference of opinion on any point(s), the opinion of the majority would constitute the decision of the Appellate Tribunal.   If the Members of the Bench were equally divided, the     President was required to refer the disputed opinion for hearing, on the point(s) of difference, by one or more other Members of the Appellate Tribunal.  The majority opinion after such reference would be the decision of the Appellate Tribunal.   It was also permissible for the President, and the Members of the Appellate Tribunal to hear and dispose of appeals, sitting singly subject to the condition that the difference in duty for the duty involved or the amount of fine or penalty involved, did not exceed ₹ 10,000/-.  The said limit was revised to ₹ 50,000/-, then to ₹ 1 lakh, later to ₹ 10 lakhs and at present the same is ₹ 50 lakhs.

The Customs and Excise and Gold Appellate Tribunals Act, 1986 (CEGAT) came into force on 23.12.1986.   Section 26 of this Act excluded the jurisdiction of the Courts except the Supreme Court.   Section 14 provided for jurisdiction, powers and authority of the Appellate Tribunal.

Section 35G provided for a reference on any question of law by the Tribunal to the High Court.  This reference would be heard by the Bench of not less than two Judges.  On the Tribunal’s refusal to refer a question of law, the aggrieved party can challenge the same  before the High Court.   The High Court would render its decision, on the question of law.   The Appellate Tribunal would there upon decide the pending appeal, in consonance with the decision rendered by the High Court.

Section 35H provided for a reference by the Tribunal directly to the Supreme Court on the question of law arising for adjudication in appeal pending before it was differently interpreted by two or more jurisdictional High Courts.   The decision of the Supreme Court would then be applied by the Tribunal to decide the pending appeal.   Section 35L provided for appeal to the Supreme Court against the judgment rendered by the High Court.

The Finance Act, 2003 substituted Section 35G of the Act in place of the remedy of reference, a direct appeal to the High Court (on or after 1.7.2003) was provided.  The High Court, on its being satisfied, that the appeal raised a substantial question of law.   The High Court would formulate the substantial questions of law.   It was open to the High Court to determine any issue which has not been decided by the Tribunal or had wrongly been decided.  Section 35L was also amended for the appeal to be filed against the order of High Court.

The National Tax Tribunal Act omitted Sections 35G, 35H, 35I and 35J of the Central Excise Act.  Every appeal from the order passed by the Appellate Tribunal will lie to the National Tax Tribunal, subject to the condition that the NTT was satisfied that the case involved a substantial question of law.  On admission of appeal, Section 23 of the Act provided that on an from the date to be notified by the Central Government, all matters and proceedings including appeals and references pertaining to direct/indirect taxes, pending before the jurisdictional High Courts, would stand transferred to the NTT, to the Supreme Court.

Customs

The Customs Act, 1962 was enacted to consolidate and amend the law relating to customs.  This Act vested the power of assessment of customs duty, with the Deputy Collector of Customs or the Collector of Customs.   An executive-appellate remedy was provided under Section 128 of the Act,

• before a Collector of Customs, where the impugned order had been passed by an officer, lower in rank to the Collector of Customs; and
• before the Central Board of Excise and Customs where the impugned order had been passed by a Collector of Customs.

The Board had also been conferred with executive revisional powers under Section 130 of the Act, to suo motu or on an application of an aggrieved person, examines the record of any proceeding, pertaining to a decision or order under the provisions of the Act.   Under Section 131 of the Act the revisionary power was also vested with the Central Government.

The Finance Act, 1980 substituted the Sections 128 to 131.  Under Section 128 and 128A of the Act the power to entertain the first executive-appellate remedy was vested with the Collector (Appeals).  A further quasi judicial appellate remedy was provided under Section 129 and 129A before the Tribunal.  CEGAT was also the appellate authority against orders passed by the Board. 

Section 129 of the Act delineated the Constitution of CEGAT.   It was to comprise of as many judicial and technical members, as the Central Government thought fit.  A judicial member could be chosen out of persons, who had held a civil judicial post for at least 10 years, or out of persons who had been in practice as an Advocate for at least 10 years, as also, from out of Members of the Central Legal Service – Grade I who had held such post for at least 3 years.   A Technical Member could be appointed out of persons, who had been members of the Indian Customs and Central Excise Service (Group A) subject to the condition, that such persons had held of the said post for at least 3 years.

The Finance Act, 1996 amended Section 129(3) by which the Central government may appoint a person to be the President, subject to the condition that the person concerned had been a Judge of the High Court or was one of the Members of the Tribunal. 

The powers of the Tribunal were to be exercised through benches constituted by the President from amongst members of the Tribunal.   Each bench shall be comprised of at least one Judicial Member and one Technical Member.  Special Bench of the Tribunal was to consist not less than two Members.  The President of Members may also dispose of appeals sitting singly subject to the condition that the value of goods confiscated, or the difference in duty involved, or duty involved, or the amount of fine or penalty involved, did not exceed ₹ 10,000/- the limit was first revised to ₹ 50,000/-, then to ₹ 1 lakh and later to ₹ 10 lakhs and at present the same is ₹ 50 lakhs.  Section 129C(4)(b) provides that a case involving a dispute where the determination of any question having a relation to the rate of duty of customs or to the value of goods for purpose of assessment is the sale or one of the points in issue, must be heard by a bench comprising of a Judicial and a Technical Member.  The majority decision will prevail.  If members equally divided, the appeal was to be referred by the Presiding on such point(s) to one or more other Members of the Tribunal.   Whereupon, the majority opinion was to be considered  as the decision of Appellate Tribunal.

Section 130 provided for a reference of a question of law, to the High Court.  A reference could be made, on an application by the Collector of Customs or the person on whom customs duty has been levied, the aggrieved party can assail the determination of the Tribunal before the jurisdictional High Court.  The Bench of the High Court in such cases shall not be less than two judges. In case of difference of opinion the majority opinion would be the decision of High Court.  Where the opinion was equally divided the matter was to be heard by one or more other Judges of the High Court.   There upon, the majority opinion of the Judges would then be applied by the Tribunal for the disposal of the appeal.

Section 130A authorized the Tribunal to make a reference directly to the Supreme Court if it was of the view that there was a conflict of decisions of High Courts in respect of a question of law pending before it for decision.   The decision of the Supreme Court, would then be applied by the Tribunal for the disposal of the appeal.

The Finance Act, 2003 introduction a new Section 130.  The remedy of a reference to the jurisdictional High Court was substituted by a remedy of an appeal to the High Court, if the High Court was satisfied that the case involved a substantial question of law.  In such eventuality the High Court would formulate the substantial question of law.   It was open to the High Court in exercise of its instant appellate jurisdiction, also to determine any issue which had not been decided by the Appellate Tribunal, or had been wrongly decided by the Tribunal. 

Section 130E was also amended which provided for an appeal before the Supreme Court from a  judgment of the High Court under Section 130 or on a reference made under Section 130 by an Appellate Tribunal (before 01.07.2003), or on a reference made under Section 130A.

The National Tax Tribunal Tax Act omitted Section 130, 130A, 130B, 130C and 130D of the Customs Act.  The new Act provided for an appeal from every order passed by the Appellate Tribunal to the National Tax Tribunal subject to the condition that the National Tax Tribunal arrived at the satisfaction, that the case involved a substantial question of law for hearing the appeal under Section 23 of the said Act provided that on and from the date to be notified by the Central Government, all matters and proceedings including appeals and references, pertaining to direct/indirect taxes, pending before the High Court would stand transferred to the National Tax Tribunal Section 24 of the said Act provides for an appeal from an order passed by the National Tax Tribunal, directly to the Supreme Court.