Karnataka High Court
Murudeshwar Ceramic Ltd vs The Joint Director on 7 December, 2022
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MFA No. 22177 of 2010
IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH
DATED THIS THE 7TH DAY OF DECEMBER, 2022
BEFORE
THE HON'BLE MR JUSTICE R.NATARAJ
MISCELLANEOUS FIRST APPEAL NO.22177 OF 2010 (ESI)
BETWEEN:
M/S MURUDESHWAR CERAMICS LTD.
GOKUL ROAD, HUBLI.
REPRESENTED BY ITS MANAGING DIRECTOR
SATISH SHETTY
...PETITIONER
(BY SRI. Z.N.HANSI, ADVOCATE)
AND:
THE ASSISTANT DIRECTOR
ESI CORPORATION, DOLORES COLONY,
KESHWAPUR, GOKUL ROAD, HUBLI.
...RESPONDENT
(BY SRI. V.M. SHEELVANT, ADVOCATE)
THIS MFA IS FILED UNDER SECTION 82(2) OF ESI ACT,
1948, AGAINST THE ORDER DATED: 13.04.2010 PASSED IN
ESI.NO.1/2006 ON THE FILE OF THE EMPLOYEES STATE
INSURANCE COURT, HUBLI, PARTLY ALLOWING THE ESI
APPLICATION FILED UNDER SECTION 45-A OF THE EMPLOYEES
STATE INSURANCE ACT 1948.
THIS APPEAL COMING ON FOR FINAL HEARING, THIS
DAY, THE COURT DELIVERED THE FOLLOWING:
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MFA No. 22177 of 2010
JUDGMENT
The establishment registered under the Employees State Insurance Act, 1948 (hereinafter referred to as 'ESI Act' for short) has filed this appeal under Section 82(2) of the ESI Act challenging the correctness of the order dated 13.04.2010 passed by the ESI Court, Hubli in ESI Application No.1/2006. The appellant also sought for a declaration that it is liable to pay contribution in respect of building to the extent of 25% being the labour charges and it is not liable to pay any contribution for the plant and machinery, for furniture and fixture, loading and unloading charges, tile laying charges etc, repairs and maintenance of plant and machinery.
2. The appellant is a public limited company involved in the manufacture of various kinds of ceramic tiles at its 2 factories situate at Krishnapur Village, Hubli and Chalamatti Village, Hubli Taluk. It claimed to have established an independent factory at Karaikal, Pondicherry, for which, separate ESI Code was obtained. The appellant claimed that an Inspector attached to the office of the ESI Corporation inspected the appellant on 04.01.2005 and verified the records for the period April-2002 to November-2004 and issued a -3- MFA No. 22177 of 2010 notice in Form C-18 demanding contribution of Rs.8,97,760/- under the following heads:
Contribut-
Sl. Nature of Amount
Period ion
No. payment (In Rs.)
(In Rs.)
Difference of
- 42,417/- 2,757/-
wages
Short payments
- in r/o Chennai - 4/-
offer
Building
1 2002-03 amount/labour 3,59,493/- 23,367/-
charges
2 2003-04 Ditto 2,49,094/- 16,191/-
Plant, machinery
3 2002-03 and labour 72,373/- 4,705/-
charges
4 2003-04 Ditto 2,08,680/- 13,565/-
Furniture, fixture
5 2002-03 and labour 36,57,341/- 2,37,728/-
charges
6 2003-04 Ditto 24,12,224/- 1,56,795/-
Repair,
maintenance- 58,313/-
7 2002-03 8,97,120/-
others and labour
charges
8 2003-04 Ditto 16,38,407/- 1,06,497/-
Exgratia Labour
2002-03 28,688/- 1,865/-
charges
2003-04 Ditto 9,900/- 644/-
Loading and
9 2002-03 unloading 16,86,468/- 1,09,621/-
charges
10 2003-04 Ditto 25,26,455/- 1,64,220/-
2002-03 Security 1,500/- 98/-
2003-04 Ditto 9,516/- 619/-
Tiles Laying
2003-04 11,848/- 771/-
Charges
Total 8,97,760/-
(Rupees Eight Lakh Ninety Seven Thousand Seven Hundred Sixty Only)
3. The appellant replied to the demand and denied its liability to pay contribution and requested the ESI corporation -4- MFA No. 22177 of 2010 to conduct an enquiry as contemplated under Section 45-A of ESI Act. Later, an enquiry was conducted and a notice was issued demanding contribution of Rs.8,97,760/-. The appellant challenged the aforesaid order in an appeal filed under Section 45-AA of ESI Act before the ESI Court, Hubli. It was contended before the ESI Court that the claim at Sl.Nos.1, 2, 7 and 9 were not disputed. Insofar as claimant No.3 is concerned, it was contended that the building amount and labour charges put together was a sum of Rs.3,59,493/- and therefore, the corporation was not justified in determining contribution on the entire amount but must have taken into account only the labour charges at 30% of Rs.3,59,493/-. Insofar of plant and machinery and labour charges, contribution was demanded on the entire sum expended. It was contended that this included not only labour charge but also material and spare parts used for repair of machinery at its factory at Hubli, Chalamatti and Karaikal. It was claimed that the materials and spare parts were sent to independent agencies outside the factory for repair and therefore, the employees engaged by such independent agencies cannot be deemed to be the employees of the appellant. Hence, no contribution was payable on this account. Insofar the furniture and fixture is concerned, it was -5- MFA No. 22177 of 2010 contended that the appellant had engaged 3 carpenters for sprucing up the showroom. It was claimed that these carpenters were not paid any wages but they had executed on the work on piece work basis. Therefore, they were not casual employees of the appellant and hence, no contribution was payable. As regards the repair and maintenance charge is concerned, it was claimed that the expenses incurred was for establishment of a new showroom and therefore, the appellant was not liable to pay contribution. As regards loading and unloading charges, the appellant claimed that the loading and unloading charges were paid to hamalies, whoever were available at the time of loading and unloading ceramic tiles at their various showrooms. The appellant claimed that these hamalies were employed in various establishments and cannot be termed to be employees of the appellant and thus, no contribution was payable under this head. Insofar as tile laying charges are concerned, the appellant claimed that these charges were paid to independent contractors who were engaged for main laying at the premises of the customers and that after completion of the work, the tile laying charges was paid by the appellant to such independent contractors and therefore, no contribution was to be paid under this head. -6- MFA No. 22177 of 2010
4. Per contra, the ESI Corporation countered the contention and contended that the representative of the appellant had appeared for personal hearing and except one item under the head of account, salary and wages, he had admitted the contribution demanded under the other heads. It claimed that the contribution claimed from the appellant was only in respect of labour charges.
5. Based on these rival contentions, the ESI Court set down the case for trial. The appellant examined 2 of its employees as AW.1 and AW.2 and marked exhibits at Ex.A1 to A129, while the ESI Corporation examined its official as RW.1 and marked exhibits at Ex.R1 to R13. Based on the oral and documentary evidence, the ESI Court held that i) in building amount and labour charges, contribution is demanded on the material charge also. The ESI Court took into consideration 35% of the building amount as labour charge and held that contribution was liable to be paid on 35% of the building and labour charge at Sl.No.3. Insofar as the plant and machinery and labour charges are concerned, the Court held that the appellant had failed to produce any document to indicate that the machineries were repaired outside the factory. Hence, it -7- MFA No. 22177 of 2010 held that the machineries were repaired through its employees, for which, wage was paid and therefore, contribution was liable to be paid. The Court however held that the cost of spare parts used for repairs were also included while calculating the contribution. Therefore, it held that contribution had to be paid on 40% of the plant and machinery/labour charges. As regards the furniture and fixture is concerned, the Court noticed that AW.2 was the carpenter who deposed that he had submitted the bills pertaining to the labour charge and received the payment from the appellant. The Court perused the bill and found that the material cost was also included and hence, it held that the labour charge would be 50% of the furniture and fixture charges and therefore, directed contribution to be paid on 50% of the amount shown as furniture, fixture and labour charges. Insofar as the repair and maintenance at showrooms is concerned, the Court held that 40% of this amount could be taken into consideration for the purpose of determining the contribution. As regards the loading and unloading charges, the Court held that the work of loading and unloading is done by contractors using their workers, for which, wage is paid. The Court held that loading and unloading tiles was not sporadic but was permanent in nature and therefore, these employees were -8- MFA No. 22177 of 2010 covered under Section 2(9) of the ESI Act. Hence, it directed contribution to be collected from the entire sum paid by the appellant for loading and unloading during the year 2002-03 and 2003-04. Insofar as the tile laying charges is concerned, the Court held that though fixing of tiles outside the factory of the appellant, is not covered under the ESI Act, yet, since the appellant had not produced any documents to show that the independent contractors have paid contribution on the wages paid to his employees, the appellant was deemed to be the employer and therefore, directed contribution to be paid under this head also. The ESI Court therefore allowed the appeal in part and directed the appellant to pay contribution of Rs.5,60,718/- along with simple interest at the rate of 12% per annum.
6. Being aggrieved by the aforesaid order, the present appeal is filed by the appellant.
7. Learned counsel for the appellant submitted that the ESI Court committed an error in calculating 35% as the labour charge in respect of building works, while it must have been 25% in view of a circular issued by the ESI Corporation. He also contended that the contribution claimed on plant and -9- MFA No. 22177 of 2010 machinery and labour charges could not be at 40% in view of the notification issued by the ESI Corporation. Likewise, in respect of furniture and fixture, he contended that these carpenters were not paid wages but were paid on piece work basis and therefore, no contribution could be claimed on the said amount. As regards, the repair-maintenance and other charges is concerned, he claimed that the ESI Court arbitrarily directed contribution to be made on 40% of the amount as labour charge. He contended that loading and unloading charges were paid to hamalies randomly and therefore, was not a wage paid to them. Hence, no contribution was payable under this head. As regards the tile laying charges, he contended that the this was done by independent contractors at the premises belonging to its customers. Therefore, he contended that payment made to these contractors cannot be deemed to be wages and therefore, contribution cannot be demanded under this head.
8. Learned counsel for the ESI Corporation on the other hand contended that the appellant did not place on record any material to establish the brake up of the labour charges paid under the heads mentioned above. She contended that an
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MFA No. 22177 of 2010 employee under Section 2(9) of the ESI Act includes those persons who are directly employed as well as those who were employed through an immediate employer to perform work on the premises of the factory or establishment and also those whose services are temporarily lent/let/hired to the principle employer and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part or branch thereof or for the purchase of raw materials or the distribution or sale of the products of the factory or establishment and includes an apprentice. He submitted that all wages paid by way of remuneration to an employee has to suffer contribution. The learned counsel invited the attention of the Court to the definition of a principal employer and an immediate employer and contended that wherever the appellant had engaged labour in relation to its business, the appellant is bound to pay contribution.
9. I have considered the submissions made by the learned counsel for the appellant as well as the ESI Corporation.
10. The ESI Court has found that contribution is demanded from the building cost as well as the labour charges
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MFA No. 22177 of 2010 and the ESI Court has pegged the labour charge at 35% though there is no definite yardstick in this regard. Likewise, in respect of plant, machinery and labour charges, the ESI Court has pegged the labour charges at 40% though there is no yardstick in this regard. As contended by the learned counsel for the appellant, the ESI Corporation had issued a circular prescribing the rate of labour charge to be reckoned when an establishment fails to produce proof of the cost of labour charges paid. The relevant portion of the said circular is extracted below:
(a) In the event of non-production of records with bifurcation of wages paid to coverable employees, contribution is to be assessed on 60% of the total amount paid to such immediate employer as in the case of Labour supplying contractors.
(b) In the cases of engineering firms and constructions agencies etc., where cost of material, use of plant, machinery, equipment are involved, the contribution is to be determined on 25% of the bill amount.
11. In view of the above, the contribution on building amount/labour charges and plant and machinery/labour charges can be calculated at 25%. Insofar as the furniture and fixture and labour charges, these works were executed in the year 2002-03 and 2003-04. The ESI Court has directed
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MFA No. 22177 of 2010 contribution to be made on 50% of this amount, however, the material placed on record indicated that material charges were also included in this. Therefore, it is appropriate that 30% of the amount shall be considered for the purpose of determining the contribution. Likewise, in respect of repair and maintenance at the showrooms, certain amount of material changes were included and hence, 30% is taken into consideration for the purpose of determining the contribution. Now coming to the crucial question relating to loading and unloading charges, the appellant claimed that this amount was paid to coolies who were not "employees" as defined under Section 2(9) of the ESI Act. However, going by the definitions of the word 'employee', it includes any person employed for wages in or in connection with the work of a factory or establishment. It is not in dispute that the loading and unloading of tiles manufactured in the establishment of the appellant at the showrooms of the appellant, is in connection with the work of the appellant as the wage paid to such person is in respect of the department of sales of the establishment. Therefore, as rightly held by the ESI Court, the appellant is liable to pay contribution on the entire amount shown as loading and unloading charges. Insofar as the contribution claimed on the tile laying charges is concerned, it
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MFA No. 22177 of 2010 is the definite case of the appellant that this was a payment made to independent contractors who laid tiles through his employees at the premises of the customers of the appellant. This definitely was not the business of the appellant and was not covered under the ESI Act, 1948.
12. Hence, the appellant is liable to pay the following contribution:
Labour Contribut-
Sl. Nature of Amount
Period charges ion
No. payment (In Rs.)
(In Rs.) (In Rs.)
Building
1 2002-03 amount/labour 3,59,493/- 89,873.25/- 5,841/-
charges
2 2003-04 Ditto 2,49,094/- 62,273/- 4,047/-
Plant,
3 2002-03 machinery and 72,373/- 18,093/- 1,176/-
labour charges
4 2003-04 Ditto 2,08,680/- 52,170/- 3,391/-
Furniture,
5 2002-03 fixture and 36,57,341/- 10,97,202/- 71,318/-
labour charges
6 2003-04 Ditto 24,12,224/- 7,23,667 47,038/-
Repair,
maintenance- 17,493/-
7 2002-03 8,97,120/- 2,69,136/-
others and
labour charges
8 2003-04 Ditto 16,38,407/- 4,91,522/- 31,948/-
Loading and
9 2002-03 unloading 16,86,468/- Nil 1,09,621/-
charges
10 2003-04 Ditto 25,26,455/- Nil 1,64,220/-
Total 1,37,07,655/- 28,03,936.25/- 4,56,093/-
13. In view of the above, the appeal is allowed-in- part and appellant is directed to pay contribution of
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MFA No. 22177 of 2010 Rs.4,56,093/- (Rupees Four Lakhs Fifty Six Thousand Ninety Three Only) and if not already deposited, along with interest at the rate of 12% from the date of the order under Section 45-A of the ESI Act, 1948 till realization. The appellant is directed to pay the amount if not already paid, within a period of 30 days from the date of receipt of a copy of this order.
Sd/-
JUDGE YAN/NR List No.: 1 Sl No.: 2