Jharkhand High Court
Abhijeet Hazaribagh Toll Road Limited vs Road Transport And Highways on 10 April, 2014
Author: R. Banumathi
Bench: Chief Justice, Shree Chandrashekhar
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IN THE HIGH COURT OF JHARKHAND AT RANCHI
W.P (C) No. 4202 of 2012
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Abhijeet Hazaribagh Toll Road Limited Petitioner
Versus
Union of India & Ors. Respondents
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CORAM: HON'BLE THE CHIEF JUSTICE.
HON'BLE MR. JUSTICE SHREE CHANDRASHEKHAR
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For the Appellant :M/s.Binod Poddar,SeniorAvocate,
Darshana Poddar Mishra,
Piyus Poddar
For the Respondent-State : Mr.A.Allam, Sr.S.C II,
Fahad Allam, JC to Sr.S.C II
For the Respondent-UOI : M/s.Prabhash Kumar,
Vishal Kumar Rai
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CAV on 1st April, 2014 Pronounced on 10th,April, 2014
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R.Banumathi,C.J. Challenging the vires of Section 3(1) of
the Building and Other Construction Workers Welfare Cess
Act, 1996 and also challenging the vires of Rule 3 of the
Building and Other Construction Workers Welfare Cess Rules,
1998 and praying for other reliefs, the petitioner has filed this
writ petition.
2. The petitioner is a consortium comprising of
M/s.Abhijeet Infrastructure Limited and M/s.Corporate Ispat
Alloys Limited with M/s.Abhijeet Infrastructure Limited as its
lead member. The petitioner is the agreement holder for
construction, operation, maintenance and transfer of NH 33.
The concessional agreement was entered into between the
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petitioner as the concessionaire and National Highway
Authority of India for four laning of Barhi-Hazaribagh Section
from km 0.00 to 40.500 of NH - 33 in the State of Jharkhand
on „Design, Built, Finance, Operate and Transfer (DBFOT)‟ Toll
basis under NHDP Phase III Project. For carrying out the
aforesaid construction of four laning of Barhi-Hazaribagh
Section of NH - 33 from km 0.00 to km 40.500, the petitioner
has appointed EPC Contractors/Sub-Contractors, namely, (i)
Abhijeet Projects Limited - the Contractor, (ii) Shakambari
Niketan Pvt. Ltd. and (iii) Yash Builders Pvt. Ltd. - Sub-
Contractors.
3. The case of the petitioner is that the aforesaid
construction of four laning of Barhi-Hazaribagh Section of
NH - 33 from km 0.00 to km 40.500, the labour component
involved in EPC Contractor/Sub-Contractors is very small,
that is about 15-20% of the total cost incurred by them. While
so, the National Highways Authority of India issued a letter
dated 9.6.2012 to the petitioner-company enclosing a letter of
Audit Officer, Government Audit Team, National Highways
Authority of India, New Delhi, by which it was, interalia,
decided for making deduction at source at the rate of 1% of the
cost of construction incurred by the petitioner-company.
4. Being aggrieved by such notice issued for making
deduction at source at the rate of 1% of the cost incurred by
the petitioner-company, the petitioner has filed this writ
petition (i) challenging the vires of Section 3(1) of the Building
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and Other Construction Workers‟ Welfare Cess Act, 1996
(BOCWW Cess Act), enacted by the Parliament being beyond
the legislative competence of the Parliament as it seeks to levy
and collect cess on the "cost of construction" incurred by an
employer without defining the term, "cost of construction"; (ii)
seeking for a declaration that Rule 3 of the Building and Other
Construction Workers‟ Welfare Cess Rules, 1998 (BOCWW
Cess Rules), is ultra vires the parent Act and Article 246 of the
Constitution of India; (iii) seeking for a direction that the levy
and collection of cess (fee) at the rate not exceeding 2% but not
less than 1% of the cost of construction instead of only on the
labour component involved in the cost of construction, is
arbitrary, unreasonable and confiscatory, since the element of
labour cost is only about 10-15% of the total cost of
construction; (iv) for quashing the Notification No.S.O. 2899
dated 26.9.1996 issued by the Central Government by which
cess at the rate of 1% of the cost of construction incurred by
an employer is to be levied and (v) for restraining the National
Highways Authority of India from making deduction at source
at the rate of 1% of the cost of construction incurred by the
petitioner-company from the petitioner-company, for which
letter dated 9.6.2012 has been issued by them to the
petitioner-company.
5. Resisting the writ petition, the State of Jharkhand
filed counter-affidavit contending that the BOCWW Cess Act
well within the legislative competence of the Parliament and
cess is levied at the rate of 1% of the cost of construction as a
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welfare measure for the workers as the said enactment has
been intended to provide health and welfare measures for the
workers engaged in building and other construction works.
6. Union of India has filed its counter-affidavit
contending that the Parliament is competent to enact the
legislation with respect to the subject-matter and that the cess
levied under the provisions of the BOCWW Cess Act is a levy
covered under Entry 97 of List - I, Union List, read with Entry
at serial 23 and 24 of List III in Schedule VII. The actual levy
does not exceed 1% notified by the Central Government on
actual cost of construction and the actual cost of construction
in Section 3 is very clear and Rule 3 of the BOCWW Cess Rules
clarifies the parameters to determine the cost of construction
and computation of cost of construction is rational and not
arbitrary.
7. We have heard Mr.Binod Poddar, learned Senior
Counsel appearing for the petitioner and Mr.Prabhash Kumar
along with Mr.Vishal Kumar Rai, learned counsel appearing for
the Union of India. We have also heard Mr.A.Allam
along with Mr.Fahad Allam, learned Sr.S.C II appearing for the
State of Jharkhand.
8. Scheme of BOCWW Cess Act, 1996
The long preamble of BOCWW Cess Act, 1996 is
indicative of its purpose that the Act is intended to provide for
the levy and collection of a cess on the cost of construction
incurred by employers with a view to augmenting the
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resources of the Building and Other Construction Workers‟
Welfare Boards constituted under the Building and Other
Construction Workers (Regulation of Employment and
Conditions of Service) Act, 1996 (BOCW(Regulation of
Employment and Conditions of Service) Act.
9. Section 2(d) of the BOCWW Cess Act adopts all the
definitions contained in BOCW(Regulation of Employment and
Conditions of Service) Act. Section 2(d) of the BOCWW Cess
Act reads as under:-
"2(d) words and expressions used herein but not defined and
defined in the Building and Other Construction Workers
(Regulation of Employment and Conditions of Service)Act, 1996,
shall have the meaning respectively assigned to them in that
Act."
10. Some of the definitions of the BOCW(Regulation of
Employment and Conditions of Service) Act are relevant to be
noted. Section 2(1)(d) of the BOCW(Regulation of Employment
and Conditions of Service) Act defines building, which reads as
under:-
"2(1)(d) " building or other construction work" means the
construction, alteration, repairs, maintenance or demolition,
of or, in relation to, buildings, streets, roads, railways,
tramways, airfields, irrigation, drainage, embankment and
navigation works, flood control works (including storm
water drainage works), generation, transmission and
distribution of power, water works (including channels for
distribution of water), oil and gas installations, electric
lines, wireless, radio; television, telephone, telegraph and
overseas communications, dams, canals, reservoirs,
watercourses, tunnels, bridges, viaducts, aquaducts,
pipelines, towers, cooling towers, transmission towers and
such other work as may be specified in this behalf by the
appropriate Government, by notification but does not
include any building or other construction work to which the
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provisions of the Factories Act, 1948 (63 of 1948), or the
Mines Act, 1952 (35 of 1952), apply;"
11. Section 2(1)(j) of the BOCW(Regulation of
Employment and Conditions of Service) Act defines
establishment as under:-
"2(1)(j) "establishment" means any establishment
belonging to, or under the control of, Government, any body
corporate or firm, an individual or association or other body
of individuals which or who employs building workers in
any building or other construction work; and includes an
establishment belonging to a contractor, but does not include
an individual who employs such workers in any building or
construction work in relation to his own residence the total
cost of such construction not being more than rupees ten
lakhs;"
12. Chapter V of the BOCW(Regulation of Employment
and Conditions of Service) Act provides for constitution and
functioning of the Building and other construction Workers‟
Welfare Boards. Section 24 of the BOCW(Regulation of
Employment and Conditions of Service) Act provides for
constitution of Building and Other Construction Workers‟
Welfare Fund and its application. Chapter IX of the
BOCW(Regulation of Employment and Conditions of Service)
Act makes special provisions regarding responsibility of
employers (Section 44); responsibility for payment of wages
and compensation (Section 45); and the notice of
commencement of building or other construction work (Section
46), which obligates the employer to send written notice to
inspector having jurisdiction in the area where proposed
building or other construction work is to be executed at least
thirty days before the commencement of any building or other
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construction work information, particulars of which find
mention under Section 46. Section 62 of the BOCW(Regulation
of Employment and Conditions of Service) Act empowers the
State Government to frame rules for carrying out the
provisions of the Act, after consultation with the expert
committee.
13. Simultaneously with the enactment of the
BOCW(Regulation of Employment and Conditions of Service)
Act in 1996, the Parliament enacted the BOCWW Cess Act. As
per the preamble of the BOCWW Cess Act, the Act is to provide
for the levy and collection of a cess on the cost of construction
incurred by employers with a view to augmenting the
resources of the Building and Other Construction Workers‟
Welfare Boards. Section 2(a) of the BOCWW Cess Act defines
the term "Board" to mean the Board constituted by the State
Government under sub-section (1) of Section 18 of the
BOCW(Regulation of Employment and Conditions of Service)
Act.
14. Section 3 of the BOCWW Cess Act, the charging
Section, reads as under:-
"3. Levy and collection of cess. - (1) There shall be levied and
collected a cess for the purposes of the Building and Other Construction
Workers (Regulation of Employment and Conditions of Service) Act,
1996, at such rate not exceeding two per cent. but not less than one per
cent. of the cost of construction incurred by an employer, as the Central
Government may, by notification in the Official Gazette, from time to
time specify.
(2) The cess levied under sub-section (1) shall be collected from every
employer in such manner and at such time, including deduction at
source in relation to a building or other construction work of a
Government or of a public sector undertaking or advance collection
through a local authority where an approval of such building or other
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construction work by such local authority is required, as may be
prescribed.
(3) The proceeds of the cess collected under sub-section (2) shall be paid
by the local authority or the State Government collecting the cess to the
Board after deducting the cost of collection of such cess not exceeding
one per cent. of the amount collected.
(4) Notwithstanding anything contained in sub-section (1) or sub-section
(2), the cess leviable under this Act including payment of such cess in
advance may, subject to final assessment to be made, be collected at a
uniform rate or rates as may be prescribed on the basis of the quantum
of the building or other construction work involved."
15. Section 4 of the BOCWW Cess Act requires "every
employer" to file returns in the manner prescribed. Section 5
spells out the process for the assessment of the cess payable,
while Section 8 provides for interest payable in the event of a
delayed payment of cess. Section 9 stipulates penalty for non-
payment of the cess within the specified time. There is an
internal mechanism of appeal under Section 11 for an
employer who is aggrieved by the assessment order made
under Section 5.
16. In exercise of the power conferred under Section 14
of the BOCWW Cess Act, the Central Government framed the
BOCWW Cess Rules. Rule 3 thereof defines the "cost of
construction" for the purpose of levy of cess as under:-
"3. Levy of cess.- For the purpose of levy of cess under sub-
section (1) of section 3 of the Act, cost of construction shall
include all expenditure incurred by an employer in connection
with the building or other construction work but shall not
include -
- cost of land;
- any compensation paid or payable to a worker or his
kin under the Workmen's Compensation Act, 1923."
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Rule 4 of the BOCWW Cess Rules makes it mandatory for
deduction of cess payable at the notified rates from the bills
paid for the building and other construction work of a
government or a public sector undertaking. Rule 5 prescribes
the manner in which the proceeds of cess collected under
Rule 4 shall be transferred by such government office, public
sector undertaking, local authority, or Cess Collector, to the
Board. The powers of the assessing officer and the mode of
Assessment are enumerated in Rules 7 to 14 of the BOCWW
Cess Rules.
17. Section 3 of the BOCWW Cess Act provides that
there shall be levied and collected a cess for the purpose of the
Building and Other Construction Workers (Regulation of
Employment and Conditions of Service) Act, 1996, at such rate
not exceeding two per cent and not less than one per cent of
the cost of construction incurred by an employer, as the
Central Government may, by notification in the Official
Gazette, from time to time specify. The Central Government,
vide notification dated 26.9.1996, has prescribed cess at one
per cent of the cost of construction incurred by the employer,
which is to be levied and collected.
18. Before we consider the contentions, we have to refer
to the judgment of Hon‟ble Supreme Court in Dewan Chand
Builders and Contractors v. Union of India and Other
[(2012) 1 SCC 101], where Hon‟ble Supreme Court upheld the
validity of Section 3 of the BOCWW Cess Act, holding that the
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same is within the competence of the Parliament and the levy
under the BOCWW Cess Act is a "fee" referable to Schedule VII
of List I Entry 97 of the Constitution of India. According to the
petitioner, even though the constitutional validity of Section 3
has been upheld by the Hon‟ble Supreme Court in Dewan
Chand Builders and Contractors [(2012) 1 SCC 101], the
petitioner can still challenge the vires of Section 3 of the
BOCWW Cess Act and Rule 3 of the BOCWW Cess Rules on
different grounds.
19. Re.:- BOCWW Cess Act, 1996 is beyond the legislative
competence and Section 3(1) of the BOCWW Cess Act,
1996 being vague is liable to be struck down.
The petitioner challenged the constitutional validity
of the charging Section, i.e. Section 3(1) of the BOCWW Cess
Act contending that:- (i) Section 3(1) seeks to levy and collect
cess on the cost of construction incurred by an employer
without defining the term, "cost of construction" in the
BOCWW Cess Act; (ii) although Section 2(d) of the BOCWW
Cess Act adopts all the definitions contained in the
BOCW(Regulation of Employment and Conditions of Service)
Act and the term, "cost of construction" has not been defined
even in this Act also; (iii) Section 3(1) of the BOCWW Cess Act
is ultra vires Article 246(3) and Entry 66 of List II (State List) of
the Seventh Schedule of the Constitution read with Entry 54
thereof because the cost of construction of any building or
construction works necessarily includes intra-State (within
State) purchase of goods/building materials, like Boulders,
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Sand, Cement, Bricks, Soil, Iron etc. and therefore, in pith and
substance, it is a fee sought to be levied on the value of intra-
State purchase of those building materials, for which
legislature of the State has exclusive power to make laws in
view of Article 246(3) and Entry 66 of List II- State List of the
Seventh Schedule of the Constitution of India read with Entry
54 thereof.
Per contra, learned counsel, Mr.Prabhash Kumar,
appearing for the Union of India and Mr.A.Allam, learned
Sr.S.C II appearing for the State of Jharkhand, submitted that
cess levied under the provisions of the BOCWW Cess Act is a
fee levied under Entry 97 of List I read with Entry 23 and 24 of
List III of the Seventh Schedule and the BOCW(Regulation of
Employment and Conditions of Service) Act and the BOCWW
Cess Act enacted by the Parliament are valid. It was submitted
that the validity of the BOCWW Cess Act has been upheld by
the Hon‟ble Supreme Court in Dewan Chand Builders and
Contractors [(2012) 1 SCC 101] and the petitioner cannot
challenge the constitutional validity on a different set of
grounds.
20. The BOCWW Cess Act has been enacted by the
Parliament under Entry 97 List I and Entry 97 reads as
under:-
"97. Any other matter not enumerated in List II or
List III including any tax not mentioned in either of those
Lists."
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Entry 54 and Entry 66 of List II read as under:-
"54. Taxes on the sale or purchase of goods other than
newspapers, subject to the provisions of entry 92A of List I"
"66. Fees in respect of any of the matters in this List, but
not including fees taken in any court."
21. Entry 54 of List II empowers the State Legislature
to make laws in respect of tax on sale or purchase of goods. As
long as the law remains on the purchase of goods, it would be
within the competence of State Legislature to enact such law.
The word, "sale" occurring in Entry 54 of the State List is to be
interpreted in the sense in which the word, "sale" is used in
the Sale of Goods Act. Under no stretch of imagination, it can
be said that the construction activity amount to sale/purchase
of goods. The subject-matter of the BOCWW Cess Act is the
activities of building and construction. The pith and substance
of the BOCWW Cess Act is to levy cess on the cost of
construction. The object is to augment the welfare fund under
the BOCW(Regulation of Employment and Conditions of
Service) Act and the essential purpose, to benefit the building
and construction workers. The construction work/construction
of road is mainly the activity involving workers and labourers,
thereby involving unorganized sector of construction workers.
The object of the contractual agreement between the petitioner
and the National Highways Authority of India is to Build,
Operate, Maintenance and Transfer of road NH - 33. In
building the road, construction materials are used, but the
contract cannot be executed without availing the work and
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labour of the construction workers. The contract engaging the
work and labour of the construction workers is integral part of
the construction activity of the petitioner, namely, construction
of NH - 33. The construction work/construction of the road
even though involves purchase of construction materials, that
does not take away the essence of the involvement of the
construction workers. As pointed out earlier, the object of
BOCW(Regulation of Employment and Conditions of Service)
Act was intended to provide safety, health and welfare
measures for the workers engaged throughout the country in
building and other construction works. To construe the
BOCWW Cess Act as levying tax covered under Entry 54 and
Entry 66 of List II would completely miss the object of the
BOCWW Cess Act. We find no merit in the contention that
because of use of construction materials like Boulders, Sand,
Cement, Bricks, Soil, Iron and machineries, "construction
activity" falls under Entry 54 of List II involving intra-State
purchase of goods and that power to levy cess by invoking
residuary under Entry 97 would not be available to the
Parliament.
22. The contention of the petitioner that the BOCWW
Cess Act, in pith and substance, is a tax on the sale or
purchase of goods, must fail. Merely because the levy of cess
is the levy on the cost of construction, it cannot render the
BOCWW Cess Act as one of the levy on sale of goods. Entry 66
of List II deals with "fees in respect of any other matters in this
List, but not including fees taken in any court." The
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construction activity and the welfare of the Construction
Workers is not falling under any of the Entries of List II. Since
the construction activity is not falling under any of the Entries
of List II, we find no merit in the contention that the
"construction activity" falls under Entry 66 of List II.
23. Upholding the constitutional validity of the
BOCWW Cess Act and holding that it is within the legislative
competence of the Parliament with reference to the Seventh
Schedule List I Entry 97, in Dewan Chand Builders and
Contractors [(2012) 1 SCC 101], Hon‟ble Supreme Court in
para 17 and 31 held as under:-
"17. ...... The BOCW Act and the Cess Act break new
ground in that, the liability to pay Cess falls not only
on the owner of a building or establishment, but under
Section 2(1)(i)(iii) of the BOCW Act
"in relation to a building or other construction
work carried on by or through a contractor, or by
the employment of building workers supplied by
a contractor, the contractor";
The extension of the liability on to the contractor is with
a view to ensure that, if for any reason it is not
possible to collect Cess from the owner of the building
at a stage subsequent to the completion of the
construction, it can be recovered from the contractor.
The Cess Act and the Cess Rules ensure that the Cess
is collected at source from the bills of the contractors to
whom payments are made by the owner. In short, the
burden of Cess is passed on from the owner to the
contractor.
...... ........ ....... ..........
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31.There is no doubt in our mind that the Statement of
Objects and Reasons of the Cess Act, clearly spells out
the essential purpose, the enactment seeks to achieve
i.e. to augment the Welfare Fund under the BOCW Act.
The levy of Cess on the cost of construction incurred by
the employers on the building and other construction
works is for ensuring sufficient funds for the Welfare
Boards to undertake social security schemes and
welfare measures for building and other construction
workers. The fund, so collected, is directed to specific
ends spelt out in the BOCW Act. Therefore, applying
the principle laid down in the aforesaid decisions of
this Court, it is clear that the said levy is a `fee' and not
`tax'. The said fund is set apart and appropriated
specifically for the performance of specified purpose; it
is not merged in the public revenues for the benefit of
the general public and as such the nexus between the
Cess and the purpose for which it is levied gets
established, satisfying the element of quid pro quo in
the scheme. With these features of the Cess Act in
view, the subject levy has to be construed as `fee' and
not a `tax'. Thus, we uphold and affirm the finding of
the High Court on the issue."
24. In Builders Association of India & Ors. v. Union
of India & Ors. [MANU/DE/7405/2007] before the Delhi High
Court, the legislative competence of the Parliament to enact
the BOCWW Cess Act was challenged on the ground that levy
of cess on the cost of construction is a levy or tax on the land
and building relating to Entry 49 of List II. Upholding the
constitutional validity of the BOCW(Regulation of Employment
and Conditions of Service) Act and the BOCWW Cess Act, in
para 19 Delhi High Court held as under:-
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"19. The challenge to the legislative competence of
Parliament to enact the BOCW Act and the Cess Act is
posited on the petitioners' understanding of the subject
matter of these statutes as being relatable to Entry 49 of
List II. ...... Therefore, to recall the Dhillon dictum,
((1971) 2 SCC 779, Union of India v. H.S.Dhillon), that has
held the field for over three decades and a half. The lead
opinion of Sikri CJ for the majority (4:3) (SCC p.791)
explained the law thus:
At any rate, whatever doubt there may be on the
interpretation of Entry 97, List I is removed by the wide
terms of Article 248. It is framed in the widest possible
terms. On its terms the only question to be asked is: Is the
matter sought to be legislated or included in List II or in
List III or is the tax sought to be levied mentioned in List II
or List III: No question has to be asked about List I. If the
answer is in the negative then it follows that Parliament
has power to make laws with respect to that matter or
tax."
In the present case, the petitioner has failed to show that levy
of cess on the cost of construction falls under any of the
Entries in List II or in List III. Entry 97 of List I deals with "any
other matter not enumerated in List II or List III including any
tax not mentioned in either of those Lists." Since the activity of
construction has no corresponding entry in List II or List III, by
invoking residual Entry 97 in List I, the Parliament has
legislative competence to enact the BOCWW Cess Act. We fully
agree with the view taken by the Delhi High Court.
25. The contention of the petitioner is that the charging
Section, Section 3, is vague since it seeks to levy and collect
cess on the cost of construction incurred by an employer
without defining the term, "cost of construction" in the
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BOCWW Cess Act. As pointed out earlier, Section 2(d) of the
BOCWW Cess Act adopts the words and expressions defined in
the BOCW(Regulation of Employment and Conditions of
Service) Act. Rule 3 of the BOCWW Cess Rules deals with levy
of cess. Rule 3 of the BOCWW Cess Rules reads as follows:-
"3. Levy of cess.- For the purpose of levy of cess under sub-
section (1) of section 3 of the Act, cost of construction shall
include all expenditure incurred by an employer in connection
with the building or other construction work but shall not
include -
- cost of land;
- any compensation paid or payable to a worker or his
kin under the Workmen's Compensation Act, 1923."
26. There is no merit in the contention that the
charging Section, i.e. Section 3 is vague as it seeks to levy cess
without defining the term, "cost of construction" in the
BOCWW Cess Act. As per the charging Section, cess has to be
quantified for the purpose of levy and that can be done by
taking the definition of "cost of construction" in Rule 3 into
consideration. Section 3 is the charging provision as well as
the computation provision. The expression "cost of
construction" is explained in Rule 3. While the charging
Section uses the expression, "cost of construction", the same is
explained in the Rules. The charging Section as well as rule 3
ought to be read together homogenously to sub-serve the
object of the enactment.
27. The Scheme of the BOCW(Regulation of
Employment and Conditions of Service) Act and the BOCWW
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Cess Act indicate that the central focus of the Acts is the
welfare of the Building and Construction Workers and the
welfare of such other workers. The BOCW(Regulation of
Employment and Conditions of Service) Act and the BOCWW
Cess Act are thus Social Welfare legislations. The
BOCW(Regulation of Employment and Conditions of Service)
Act is intended to regulate employment and conditions of
service of Building and Other Construction workers and to
provide them their safety, health and welfare measures and
other matters connected therewith or incidental thereto. We
may usefully refer to the Statement of Objects and Reasons of
the BOCW(Regulation of Employment and Conditions of
Service) Act, which reads as under:-
"It is estimated that about 8.5 million workers in the
country are engaged in building and other construction
works. Building and other construction workers are one of
the most numerous and vulnerable segments of the
unorganised labour in India. The building and other
construction works are characterised by their inherent risk
to the life and limb of the workers. The work is also
characterised by its casual nature, temporary relationship
between employer and employee, uncertain working hours,
lack of basic amenities and inadequacy of welfare
facilities. In the absence of adequate statutory provisions,
the requisite information regarding the number and nature
of accidents is also not forthcoming. In the absence of such
information, it is difficult to fix responsibility or to take any
corrective action.
2. Although the provisions of certain Central Acts
are applicable to the building and other construction
workers yet a need has been felt for a comprehensive
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Central Legislation for regulating their safety, health,
welfare and other conditions of service. ......."
In view of the circumstances explained above, it has been
considered necessary to constitute Welfare Boards in every
State so as to provide and monitor social security schemes and
welfare measures for the benefit of Building and Other
Construction Workers. To provide for levy and collection of
cess on the cost of construction incurred by the employers
with a view to augmenting the revenue of the Welfare Boards
constituted by the State Government and under the
BOCW(Regulation of Employment and Conditions of Service)
Act, the Parliament has enacted the BOCWW Cess Act. The
levy of cess on the cost of construction incurred by the
employer is to augment funds for the Welfare Boards to
undertake Social Security Scheme.
28. Re:- Challenge to the vires of Rule 3 of the BOCWW
Cess Rules and also challenge to the Notification No.SO
2899 dated 26.9.1996
Under Section 14(1) of the BOCWW Cess Act, the
Central Government is empowered to make rules for carrying
out the provisions of the Act. Clauses (a) to (h) of sub-section
(2) of Section 14 of the the BOCWW Cess Act enumerate the
subjects in respect of which, the Central Government can
make rules. The subjects enumerated in clauses (a) to (h) of
Section 14(2) are illustrative in nature of the power granted to
the Central Government to make rules. Challenging the vires of
Rule 3 of the BOCWW Cess Rules, learned Senior Counsel
20
appearing for the petitioner contended that Rule 3 is beyond
the competence and power of the Central Government and
Section 14 of the BOCWW Cess Act is ultra vires the parent
Act as the BOCWW Cess Act does not empower the Central
Government to define the term, "cost of construction" and the
same amounts to making legislation by the Central
Government seeking levy of cess on the "cost of construction"
defined under Rule 3 of the BOCWW Cess Rules, thereby
violating Article 246 of the Constitution of India.
29. Per contra, the learned counsel for the respondents
submitted that Rule 3 of the BOCWW Cess Rules clarifies
parameters to determine the cost of construction and the
computation of the cost of construction bears nexus with the
actual purport of the levy and computation of the cost of
construction is rational and not arbitrary.
30. The question falling for consideration is as to
whether Rule 3 of the BOCWW Cess Rules is ultra vires the
parent Act and Article 246 of the Constitution of India.
31. In the case of State of T.N & Ano. v.
P.Krishnamurthy & Ors. [(2006) 4 SCC 517, Hon‟ble
Supreme Court has laid down the following tests for
considering the validity of a subordinate legislation:-
"Whether the Rule is valid in entirety ?
15. There is a presumption in favour of constitutionality
or validity of a sub-ordinate Legislation and the burden is
upon him who attacks it to show that it is invalid. It is
21
also well recognized that a subordinate legislation can be
challenged under any of the following grounds :-
a) Lack of legislative competence to make the
subordinate legislation.
b) Violation of Fundamental Rights guaranteed under
the Constitution of India.
c) Violation of any provision of the Constitution of
India.
d) Failure to conform to the Statute under which it is
made or exceeding the limits of authority conferred by the
enabling Act.
e) Repugnancy to the laws of the land, that is, any
enactment.
f) Manifest arbitrariness/unreasonableness (to an
extent where court might well say that the Legislature
never intended to give authority to make such Rules).
16. The court considering the validity of a subordinate
Legislation, will have to consider the nature, object and
scheme of the enabling Act, and also the area over which
power has been delegated under the Act and then decide
whether the subordinate Legislation conforms to the
parent Statute. Where a Rule is directly inconsistent with
a mandatory provision of the Statute, then, of course, the
task of the court is simple and easy. But where the
contention is that the inconsistency or non-conformity of
the Rule is not with reference to any specific provision of
the enabling Act, but with the object and scheme of the
Parent Act, the court should proceed with caution before
declaring invalidity."
32. Keeping in view the above principles, let us
consider the challenge to the vires of Rule 3 of the BOCWW
Cess Rules. Under Section 14(1) of the BOCWW Cess Act, the
Central Government is empowered to make rules for carrying
out the provisions of the Act. Rule 14(2)(h) of the BOCWW Cess
22
Act empowers the Central Government to make "rules in any
other matter which has to be or may be, prescribed." Thus,
Section 14 clearly empowers the Central Government to frame
rules to carry out the purpose of the Act. Rule 3 of the
BOCWW Cess Rules deals with levy of cess and explains "cost
of construction". As per rule 3, the cost of construction means,
"cost of construction shall include all expenditure incurred by an
employer in connection with the building or other construction
work but shall not include cost of land and any compensation
paid or payable to a worker or his kin under the Workmen's
Compensation Act, 1923."
33. It is now well settled principle of interpretation of
the Statute that the court must give effect to the purport and
object of the Act. The rule of purposive construction should,
of course, be subject to the applicability of the principles of
interpretation. Cess is to be levied not exceeding 2% but not
less than 1% on the cost of construction. Rule 3 explains the
cost of construction. Computation of cost of construction bears
nexus with the actual payer and levy of cess. Therefore, it
cannot be contended that Rule 3 exceeds the limits of
authorization conferred upon the Central Government by the
Act. Considering the object of the enabling Act, we are of the
view that Rule 3 conforms to the parent Act and is not violative
of parent Act and Article 246 of the Constitution of India.
23
34. On behalf of the petitioner, it was then contended
that levy and collection of cess at the rate not exceeding 2%
but not less than 1% of the cost of construction instead "on
the labour component involved in the cost of construction
under Section 3 of the Act read with the Rules is arbitrary and
unreasonable, highly excessive and confiscatory in nature.
Learned Senior Counsel appearing for the petitioner placed
reliance on A.V.Fernandez v. State of Kerala (AIR 1957 SC
657) and Mathuram Agrawal v. State of Madhya Pradesh
(AIR 2000 SC 109).
35. Vide Notification No.S.O 2899 dated 26.9.1996, for
the purpose of the BOCW(Regulation of Employment and
Conditions of Service) Act (27 of 1996), cess at the rate of 1%
of the cost of construction incurred by the employer is to be
levied and collected. Rule 3 of the BOCWW Cess Rules
explains the parameters to determine the cost of construction.
The component of cess is in-built in the cost of construction,
for which the contractor is reimbursed. The Notification No.
S.O 2899 dated 26.9.1996 is for the purpose of levy of cess at
the rate of 1% of the cost of construction as per Section 3 of
the BOCWW Cess Act. The levy of cess at the rate of 1% is for
the purpose of augmenting the resource of the Building and
Other Construction Workers‟ Welfare Boards under the
BOCW(Regulation of Employment and Conditions of Service)
Act. We have held earlier that the engagement of construction
workers and labourers is integral part of the construction
activity. Since the work and labour are inseparable part of the
24
construction activity, the labour part is inseparable, cess is
levied on the cost of construction. With the growth of
industrialization and urbanization, the volume of construction
activities including construction of highways, expressways, fly-
over and road and other infrastructures undertaken by the
Government Agencies and Public Sector Undertakings are on
increase. The main object of the Statute being to augment
revenue for the welfare of the construction workers and
therefore, cess at the rate of 1% is levied on the cost of
construction. The submission that levy of cess at the rate of
1% on the cost of construction is arbitrary and excessive is
without any basis and is liable to be rejected.
36. Levy of cess on the cost of construction is intended
for augmenting the revenue of the Welfare Boards. Observing
that the cess is a fee intended to benefit a specified class of
persons, viz construction workers. In Dewan Chand Builders
and Contractors [(2012) 1 SCC 101], Hon‟ble Supreme Court
in para 28, 29 and 30 held as under:-
"28. On the basis of the above considerations, this Court in the Hingir
Rampur case (AIR 1961 SC 459), examined the scheme of the Act impugned in
that case in depth and opined that the primary and the principal
object of the Act was to develop the mineral areas in the State and to assist
in providing more efficient and extended exploitation of its mineral
wealth. The Cess levied did not become a part of the consolidated
fund and was not subject to an appropriation in that behalf. It went
into a special fund earmarked for carrying out the purpose of the Act and
thus, its existence established a correlation between the Cess and the
purpose for which it was levied, satisfying the element of quid pro
quo in the scheme. These features of the Act impressed upon the
levy the character of a `fee' as distinct from a `tax'.
25
29. Recently in State of W.B. Vs. Kesoram Industries Ltd. & Ors. (2004) 10
SCC 201), the Constitution Bench of this Court, was faced with a
challenge to the Constitutional validity of the levy of Cesses on coal-bearing
lands, tea plantation lands and on removal of bricks earth. Relying
on the decision in Hingir Rampur Coal Co. Ltd (AIR 1961 SC 459),
speaking for the majority, R.C. Lahoti, J. (as His Lordship then was),
explained the distinction between the terms `tax' and `fee' in the following
words: ( Kesoram Industries case, (2004) 10 SCC 201) SCC p.332, para 146)
"146. ...The term cess is commonly employed to connote a Tax
with a purpose or a tax allocated to a particular thing.
However, it also means an assessment or levy. Depending on the
context and purpose of levy, cess may not be a tax; it may be a
fee or fee as well. It is not necessary that the services rendered from
out of the Fee collected should be directly in proportion
with the amount of Fee collected. It is equally not necessary
that the services rendered by the Fee collected should remain
confined to the person from whom the fee has been
collected. Availability of indirect benefit and a general nexus
between the persons bearing the burden of levy of fee and
the services rendered out of the fee collected is enough to
uphold the validity of the fee charged."
30. In the light of the tests laid down in Hingir Rampur (AIR 1961 SC 459)
and followed in Kesoram Industries (2004) 10 SCC 201), it is manifest that the true test to
determine the character of a levy, delineating `tax' from `fee' is the primary object
of the levy and the essential purpose intended to be achieved."
37. To summarize our conclusion as under:-
Following the ratio of the judgment of Hon‟ble
Supreme Court in Dewan Chand Builders and Contractors
[(2012) 1 SCC 101], we hold that the Parliament has
legislative competence to enact the BOCWW Cess Act. Rule 3
of the BOCWW Cess Rules is not ultra vires the BOCWW Cess
Act and Article 246 of the Constitution of India and levy of cess
at the rate of 1% on the cost of construction is neither
arbitrary, nor excessive. There is no arbitrariness in the
Notification No.S.O 2899 dated 26.9.1996 issued by the
26
Central Government, by which cess at the rate of 1% of the
cost of construction incurred by the employer to be levied and
collected for the purposes of the BOCW(Regulation of
Employment and Conditions of Service) Act. There is no
arbitrariness or unreasonableness in the levy of cess at the
rate of 1% of the cost of construction incurred by the petitioner
company.
In the result, the writ petition is dismissed.
(R. Banumathi, C.J.)
(Shree Chandrashekhar, J.)
Jharkhand High Court, Ranchi
Dated 10th April,2014
AFR Dey/