Karnataka High Court
The Assistant Director And Anr vs Korvi Activated Earths on 3 August, 2022
Author: M.G.S.Kamal
Bench: M.G.S.Kamal
1
IN THE HIGH COURT OF KARNATAKA
KALABURAGI BENCH
DATED THIS THE 03RD DAY OF AUGUST 2022
BEFORE
THE HON'BLE MR.JUSTICE M.G.S.KAMAL
MFA No.30199/2013 (ESI)
BETWEEN:
1. The Regional Director,
Employees State Insurance Corporation,
No.10, Binny Fields,
Binny Pet, Bangalore-560023.
2. The Assistant Director,
Sub-Regional Office (Hubli),
Employees State Insurance Corporation,
Sarvodaya Circle, Keshwapur,
Hubli-580023.
3. The Recovery Officer,
Employees State Insurance Corporation,
Sarvodaya Circle, Keshwapur,
Hubli-580023.
All the appellants represented
By the Assistant Director,
Employees State Insurance Corporation,
Divisional Office, Gulbarga-585105.
.....Appellants
(By Smt. Sangeetha Bhadrashetty, Advocate)
2
AND:
Korvi Activated Earths,
Plot No.14, Sy.No.4, KIADB,
Industrial Estate, Stage II, After
Kapnoor village, Gulbarga,
Represented by its Managing Partner.
Pin Code-585101.
.....Respondent
(By Sri Ganesh.S.Kalburgi, Advocate)
This MFA is filed under section 82 (2) of the
Employees State Insurance Act, praying to allow this
appeal by setting aside the Order passed in Application
No.2/2006 dated 16.01.2010 by the Employees State
Insurance Court Hubli, at Hubli and dismiss the application
filed by the Respondent herein with costs.
This appeal coming on for hearing, this day, the
court delivered the following:
JUDGMENT
The present appeal is by the appellant/Regional Director, Employees State Insurance Corporation under Section 82 of Employees State Insurance Act, 1948 (herein after referred to as 'the Act') aggrieved by the judgment and award dated 16.01.2010 passed in ESI Application No.2/2006 by the Employees State 3 Insurance Court, Hubli (herein after referred to as 'the Tribunal') by which the application filed by the respondent under Section 75(1) of the Act, has been allowed by setting aside the order dated 08.04.2005 passed by the appellants under Section 45-A of the Act, and consequent issuance of recovery notice.
2. Facts leading up to filing of the present appeal as stated by the respondent before the tribunal are that; respondent is a partnership firm running a factory established under the Factories Act with its main objective of manufacturing High Powered Activated Bleaching Earths. The Factory of the respondent is situated at Kapnoor village in Gulbarga Taluk, which is admittedly covered under the Act. That the raw material for the purpose of production is stated to be procured from the mine situated at Korvi which is about 80 Kms away from the Kapnoor village. 4 That the respondent firm is paying the contribution under the Act regularly in respect of its factory activities. Since, the mining operation is being carried out at Korvi village, which is outside the purview of the Act, being 80 kms away from the factory, the labourers who are working in the mining operation would not be covered under the Act. That on 19.11.2002, the ESI Inspector visited the factory of respondent and after inspection submitted a report stating that the respondent-establishment was liable to pay ESI contribution under the following five heads viz., (1) labour wages of Rs.7,61,727/- (2) Office painting Rs.16,324/- (3) Petrol allowance paid to Gurlingappa, Dilip, Jagadish of Rs.8,750/- which was paid monthly. (4) Machinery repair and maintenance labour charges Rs.1,76,491/- (5) Factory repair and maintenance of Rs.2,308/-. Aggregating in sum of Rs.9,65,600/- and the contribution payable thereon 5 would be Rs.62,764/-. That a notice demanding payment of the aforesaid amount was issued by the Department to which the respondent-establishment issued a reply letter dated 20.12.2002 disputing the liability to pay the contribution amount on the following grounds: (a) that since the Korvi mining area in which the daily wage labourers were employed is not covered under the ESI Act, as the same is beyond the coverage of the Act and the labour charges paid to the mining operation labourers was thus not liable for the contribution. (b) the amount of Rs.16,324/- shown as expenses for painting of office premises was in fact the expenses incurred towards the purchase of paint and materials and hence was not liable for the purpose of payment of contribution.
(c) that the petrol allowances paid to three employees would not attract the contribution as the same is excluded from the payment of contribution. (d) The 6 amount of Rs.1,76,491/- spent for repair and maintenance of machineries was carried out by third party and not by the labourers and was not within the respondent premises over which the respondent has no control as such the said expenses incurred in that regard was liable to be excluded. (e) As regards the maintenance of the factory, some amount has been spent towards purchasing of some materials for repair of the factory and the same is not liable for payment of contribution. That despite, the reply letter issued by the respondent clarifying the position, the recovery officer issued a notice dated 29.08.2005 directing the respondent to pay the contribution along with interest in a sum of Rs.1,34,678/- for the period from 2000 to 2002. Without even hearing the respondent- establishment an order under Section 45-A of the Act was passed and in pursuant thereof recovery notice was also issued. Aggrieved by the same, the 7 respondent/applicant filed an application under Section 75(A) of the Act, before the Tribunal.
3. In response to the said application, the appellant/respondent No.2 filed statement of objections stating that the ESI Inspector had visited the factory of the respondent-establishment on 19.11.2002 and conducted regular inspection and noticed that for the period from 01.08.2000 to 31.03.2002, the respondent-establishment had not paid the contribution on the five heads referred to above and accordingly submitted the survey report. Based on which the notices were issued giving ad-hoc calculation, calling upon the respondent-establishment for personal hearing along with records. The applicant addressed the letter to the appellant on 06.08.2004 stating that they were not liable to pay the contribution on five heads. However, did not appear 8 for the personal hearing. Though sufficient opportunity was granted for personal hearing, the respondent- establishment neither appeared nor furnished the concerned records. Consequently an order dated 08.04.2005 was passed under Section 45-A of the Act on ad-hoc basis, which is in accordance with law. Since the respondent-establishment has not paid the amount, recovery notice was issued. Hence, sought for dismissal of the application.
4. Based on the pleadings, the tribunal framed the issues;
(a) Does the applicant prove that it is not liable to be covered under the provisions of ESI Act, 1948?
(b) Does the applicant further prove that it is not liable to pay the contribution as ordered by the respondent No.2 under Section 45-A of ESI Act, 1948?
(c) What order?
9
5. One Prabhakar Kulkarni, has been examined on behalf of respondent-establishment as AW-1 and exhibited 75 documents marked as Exs.A1 to A75. On behalf of appellant, two witnesses have been examined namely Anil Ranga and A.B.Bhat as RW.1 and RW.2 and exhibited 20 documents marked as Exs.R1 to R20.
6. Based on the material evidence, the tribunal answered issue Nos.1 and 2 in the affirmative holding that respondent-establishment is not liable to pay the contribution and consequently allowed the application by the impugned order and set aside the recovery notice. Aggrieved by the same, the present appeal is filed.
7. Smt.Sangeeta Bhadrashetty, learned counsel appearing for the appellants reiterating the 10 grounds urged in the memorandum of appeal submitted that the documentary evidence made available by the respondent-establishment itself establishes its liability for payment of contribution. Referring to Ex.R1, the inspection report wherein contribution is demanded under the aforesaid five heads, she submits that same was prepared on inspection, verification and survey of the factory premises situated at Kapnoor village, Industrial Area, within the jurisdiction of ESI Act. The balance sheet produced at Ex.R5 from 01.04.2000 to 31.03.2001, prepared by the respondent pertains to its office at Gulbarga. She further submits that profit and loss account enclosed with the said balance sheet contains the heads under which the payment of contribution is made. She further submits that respondent- establishment cannot seek to avoid the liability of payment on the premise of it engaging the labourers 11 at mining place which is away from the factory premise as there is no such distinction provided under the Act. As regards petrol allowances, she fairly concedes that under the definition of wages provided under the Act, the said expenses would not be covered. As regards the machineries, repairs and maintenance, she submits that documents furnished by the respondent-establishment cannot be relied upon as the same are created for the purpose of the case. Hence, she submits that the tribunal grossly erred in not taking into consideration these aspects of the matter while allowing the application filed by the respondent-establishment. Hence, seeks for allowing of the appeal.
8. Despite service of notice in this matter, respondent-establishment has remained absent. This Court by order dated 27.07.2021 appointed 12 Sri.Ganesh Kalburgi, learned counsel as Amicus Curiae. In fact, this Court by another order dated 17.12.2021 had directed the Amicus Curiae to inform the respondent-establishment regarding the pendency of the present proceedings and if need be to keep them present before this Court. Learned Amicus Curiae submits that he had made efforts communicating about the same, however, they remained defiant in the matter.
9. Learned Amicus Curiae submits that as regards the claim for contribution in respect of payment of labour wages, the same is covered under the definition of "employee" as provided under the Act. As regards, the claim under the heads of office painting and petrol allowance, the learned Amicus Curiae relying upon the judgment of the Hon'ble Apex Court in the case of The Employees State 13 Insurance Corporation Vs. M/s. Texmo Industries passed in SLP (C) No.811/2021 on 08.03.2021, he submits that petrol allowance would not fall within the definition of wages. Hence, the same needs to excluded. As regards the claim under the machineries, maintenance and factory repairs, he submits that the documents produced by the respondent-establishment before the tribunal be taken into consideration.
10. Heard the learned counsel for the parties and perused the records.
11. The substantial question of law that arise for consideration in this appeal is;
(a) Whether on the facts and in the circumstances of the case the tribunal is justified in coming to the conclusion that the respondent-establishment is not liable 14 to pay the contribution as it is not covered under the provisions of ESI Act, 1948?
12. Before adverting to the facts of the case and the submissions made by the learned counsel for the parties, it is necessary to refer to Section 2(9) of the ESI Act, which is extracted hereunder;
" 2(9) "employee" means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and---
(i) who is directly employed by the principal employer, on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or
(ii) who is employed by or through an immediate employer, on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or 15
(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service;
and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment] [or any person engaged as apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), 19 [and includes such person engaged as apprentice whose training period is extended to any length of time] but does not include]--
(a) any member of [the Indian] naval, military or air forces; or
(b) any person so employed whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government] a month:
Provided that an employee whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government] at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period"16
13. A perusal of the aforesaid definition makes it clear that an employee means any person employed for wages working anywhere in connection with the work of the factory or establishment either temporarily or on hire. It is the contention of the respondent-establishment that the payment of labour wages of Rs.7,61,721/- cannot be brought within the purview of the Act, in as much as the same were paid to the casual labourers who were engaged at the mining work which is 80 kms away from the factory premises, which contention has been accepted by the tribunal while allowing the application of the respondent-establishment. In the considered opinion of this Court, the tribunal has erred in not taking into consideration of the aforesaid definition of Act, extracted herein above. It is not in dispute that respondent-establishment which is engaged in the 17 business of manufacturing of High Powered Activated Bleaching Earths has its factory located at the address shown above. The raw material for its manufacturing purpose is procured from the mine at Korvi village which is situated about 80 kms away from the factory premises. Nonetheless, the labourers who were engaged either permanently or casually at the mine were paid the wages in connection with the manufacturing process of the respondent- establishment. The balance sheet at Ex.R5 is filed in respect of profit and loss account of the respondent- establishment factory premises, there is no distinction made with regard to the expenditure incurred in the mining activity separately with that of the activities of the factory. In view of the definition of "employee" extracted herein above and taking into consideration the contents of the balance sheet at Ex.R5, this Court is of the considered view that a sum of Rs.7,61,727/- 18 shown in the balance sheet as labour wages is liable for payment of contribution.
14. Adverting to the claim of the appellant with regard to the office painting as fairly conceded by the appellant, the same requires to be excluded as it would not fall within the definition of wages.
15. As regards the petrol allowance, the Hon'ble Apex Court in its aforesaid judgment passed in Texmo Industries, while referring to the definition of wages under Section 22(2) of the Act, at paragraph Nos.13, 14 and 15 has held as under;
13. A reading of Section 2(22) of the ESI Act, makes it amply clear that 'wages' means all remuneration paid or payable in cash to an employee, under a contract of employment, express or implied, as consideration for discharging his duties and obligations under such contract of employment, including any payment to an employee in respect of any period of authorised leave, lock-out, strike which is 19 not illegal or lay-off and other additional remuneration, if any, paid at intervals not exceeding two months. The definition of 'wages', however, expressly excludes any contribution paid by the employer to any pension fund or provident fund or under the ESI Act, any travelling allowance or the value of any travelling concession, any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment or any gratuity payable on discharge.
14. From the definition of wages in Section 2(22) of the ESI Act, it is amply clear that wages includes remunerative payments, but does not include compensatory payments. Travelling allowance including the value of travelling concession has expressly been excluded from the definition of wages, as also any payment made to an employee to reimburse or compensate for special expenses that an employee might incur by reason of the nature of his employment.
15. The Employees' State Insurance Court held, and in our view, rightly, that Conveyance Allowance is in the nature of travelling allowance, the object of which is to enable the employee to reach his place of work and to defray costs incurred on travel from his place of residence to his place of work. If instead of paying the Conveyance Allowance, the employer 20 provided free transport to the employee, the monetary value of that benefit of travel from his residence, to his place of work would also not be regarded as forming part of his wages.
16. In that view of the matter, petrol allowance stands excluded from the definition of the wages. Therefore, there cannot be any payment of contribution thereon.
17. With regard to the expenses towards machinery repairs, maintenance of the factory repairs, respondent-establishment has furnished bills to substantiate its contention of the same being expenditure. A bare perusal of the said document would indicate that the same have been brought up for the purpose of the case. Learned counsel for the appellant pointed out the serial numbers of the bills which are in the descending orders with the dates mentioned thereon, which indicate the hasty 21 preparations of the said bills for the purpose of the case. The said documents cannot be taken into consideration, as the same do not evince any credibility. The tribunal has not adverted to these aspects of the matter. As already noted above, despite service of notice, and request, reminder by learned Amicus Curiae, the respondent-establishment has not made any efforts either to assist the Amicus Curiae or to be present before this Court to defend the appeal. In that view of the matter and for foregoing reasons, on facts and circumstances of the case, the impugned order requires to be interfered with. The finding of the tribunal completely exonerating the respondent-establishment from the payment of contribution cannot be countenanced. Consequently, it is held that the respondent-establishment is liable for payment of contribution under the ESI Act and the 22 substantial question of law is answered accordingly. Hence, the following;
ORDER
(a) The appeal in MFA No.30199/2013 (ESI) is allowed in part.
(b) The respondent-establishment shall pay the contribution in accordance with the provisions of the act on the (i) labour wages (ii) machinery repairs (iii) maintenance and factory repairs which have been omitted by the respondent-establishment for the purpose of payment of contribution for the year 2000 to 2002 for payment of contribution together with interest as provided under the Act. 23
(c) The respondent-establishment shall not be liable to pay any contribution with regard to
(i) office painting and (ii) petrol allowances. This Court places its appreciation for the able assistance rendered by Sri.Ganesh Kalburgi, learned Amicus Curaie in disposal of this matter. The fees of sum of Rs.7,500/- is fixed payable to learned Amicus Curaie.
Sd/-
JUDGE msr