Telangana High Court
M/S. Siddardha Constructions Pvt. ... vs The South Central Railway Scr on 5 June, 2023
Author: K. Lakshman
Bench: K. Lakshman
HON'BLE SRI JUSTICE K. LAKSHMAN
WRIT PETITION No.24925 OF 2009
ORDER:
Heard Mr. M. Venkatarami Reddy, learned counsel for the petitioner and Mr. Ananthula Ravinder, learned Standing Counsel appearing for respondent Nos.1 to 5 and also learned Assistant Government Pleader for Labour appearing on behalf of respondent No.6.
2. This writ petition is filed to declare the impugned memo No.W.148/1/9 (Vol.IV), dated 03.03.2009 issued by respondent No.2 and the action of the respondents in making unilateral, arbitrary deduction of amount at 1% towards Labour Cess under the provisions of the Building and Other Construction Workers Welfare Cess Act, 1996 and the Rules made thereunder from the outstanding bills of the petitioner, as illegal, and for a consequential direction to the respondents not to recover 1% amount towards Labour Cess from the bills payable to the petitioner.
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KL,J W.P. No.24925 of 2009
3. FACTS:
i) The petitioner is a registered contractor. It has been executing contracts in various Government Departments including South Central Railways.
ii) Respondent Nos.1 to 5 have called for tenders for supply and stacking of 50 MM machine crushed stone ballast. The petitioner participated in the said tender and stood as successful bidder.
Therefore, respondent Nos.1 to 5 have entered into an agreement dated 06.07.2006 with the petitioner for supply and stacking of about 1,44,000 cubic meters of ballast at Parbhani Depot in Nanded Division. Like-wise, respondent No.5 also entered into another agreement dated 28.11.2008 with the petitioner for supply, stacking and loading of about 90,000/- cubic meters of ballast at Railway Depot and Parbhani Station Yard. The petitioner started supply of the said ballast in terms of the aforesaid agreements.
iii) Respondent No.2 vide Memo dated 03.03.2009 directed all the Divisional Authorities to recover the cess from the Contractors in respect of all the agreements in force on or after 26.06.2007 and also 3 KL,J W.P. No.24925 of 2009 in relation to the agreements in which the work is completed, but final bills are yet to be drawn as on the said date.
iv) Basing on the said Memo, respondent No.5 has deducted an amount at 1% in the 31st bill paid to the petitioner on 31.08.2009. The amount of Rs.57,787/- was deducted at 1% on 70% of the value of the bills from 25th to 31st bill. In view of the said Memo, the authorities are likely to deduct 1% on the entire value of the contract from out of 32nd bill and or from the final bill, which were pending in respect of agreement dated 06.07.2006. There was likelihood of respondents to deduct the amount @ 1% towards labour cess from the bills payable in respect of the agreement dated 28.11.2008.
4. Contentions of the petitioner:
It is the specific contention of the petitioner that the nature of work agreed to execute by the petitioner does not involve any construction activity and as per Section - 3 of the Building and Other Construction Workers' Welfare Cess Act, 1996 (for short 'Cess Act, 1996'), levy can be only in respect of the building and other construction work. Therefore, the action of respondent Nos.1 to 5 in deducting 1% from 31st bill paid to the petitioner on 31.08.2009 i.e., Rs.57,787/- is illegal and the action of respondent Nos.1 to 5 in trying 4 KL,J W.P. No.24925 of 2009 to deduct the said amount from the bills payable to the petitioner is also illegal.
5. This Court vide order dated 27.11.2009 granted interim direction to respondent Nos.1 to 5 to pay the amounts payable to the petitioner without deducting labour cess @ 1% from the bills.
6. Contentions of respondent Nos.1 to 5:
Learned standing counsel appearing for respondent Nos.1 to 5 would submit that pursuant to the notice dated 20.11.2007 issued by the Commissioner of Labour, Government of Andhra Pradesh to remit the Building and other Construction Workers Welfare Cess @ 1% on the cost of construction/estimated cost of construction from 26.06.2007 onwards as per the Cess Act, 1996, respondent No.2 had issued Memo dated 03.03.2009 directing all the Divisions to work out the Cess to be collected from contractors from the Agreements in force on or after 26.06.2007 and also from the agreements in which work is completed but final bills are yet to be drawn as on date and take immediate necessary action to recover the amounts from the Contractors' bills, and an advise may be given to the Contractors regarding the said recovery. Respondent No.2 has also referred the 5 KL,J W.P. No.24925 of 2009 judgments of the Andhra Pradesh and Delhi High Courts. Thus, according to the respondents, nature of contract includes construction activity and, therefore, the petitioner has to pay cess to respondent Nos.1 to 5, and there is no irregularity in deducting the same from the bills of the petitioner. With the said submissions, he sought to dismiss the present writ petition.
7. Analysis and Finding of the Court:
i) It is relevant to note that the object of the Building and Other Construction Workers' (Regulation of Employment and Conditions of Service) Act, 1996 (for short 'BOCW Act') is as follows:
"49. In Dewan Chand Builders & Contractors v. Union of India [(2012) 1 SCC 101:(2012) 1 SCC (L&S) 1], this Court examined the object of the BOCW Act of welfare of workers engaged in building and construction work, and held: (SCC pp. 103-04 & 106-08, paras 3-4, 11 & 17) "3. The background in which the BOCW Act was enacted, is set out in the Statement of Objects and Reasons appended to the Bill preceding its enactment. To better appreciate the legislative intent, it would be instructive to refer to the following extract from the Statement of Objects and Reasons:
'Statement of Objects and Reasons.--It is estimated that about 8.5 million workers in the country are engaged in building and other construction works. Building and other 6 KL,J W.P. No.24925 of 2009 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 Central Legislation for regulating their safety, health, welfare and other conditions of service.'
4. A fairly long Preamble to the BOCW Act is again indicative of its purpose. It reads thus:
'An Act to regulate the employment and conditions of service of building and other construction workers and to provide for their safety, health and welfare measures and for other matters connected therewith or incidental thereto.' ***
11. The Statement of Objects and Reasons to the BOCW Act explained that it had been considered:
'... necessary to levy a cess on the cost of construction incurred by the employers on the building and other construction works for ensuring sufficient funds for 7 KL,J W.P. No.24925 of 2009 the Welfare Boards to undertake the social security Schemes and welfare measures.' Simultaneously with the enactment of the BOCW Act, Parliament enacted the Cess Act. The Statement of Objects and Reasons to the Cess Act noted that the intention was to 'provide for the levy and collection of a cess on the cost of construction incurred by the employers for augmenting the resources of the Building and Other Construction Workers' Welfare Boards constituted by the State Governments under the Building and Other Construction Workers' (Regulation of Employment and Conditions of Service) Ordinance, 1995.' ***
17. It is manifest from the overarching schemes of the BOCW Act, the Cess Act, the Rules made thereunder that their sole object is to regulate the employment and conditions of service of building and other construction workers, traditionally exploited sections in the society and to provide for their safety, health and other welfare measures. 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:
'2. (1)(i)(iii) 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 8 KL,J W.P. No.24925 of 2009 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."
ii) Sections - 2 (1) (d) and 2 (1) (i) of the BOCW Act are relevant and the same are extracted hereunder:
"Section 2. Definitions.
(1) In this Act, unless the context otherwise requires,--
(a) xxxxx
(b) xxxxx
(c) xxxxx
(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, aqueducts, 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 9 KL,J W.P. No.24925 of 2009 building or other construction work to which the provisions of the Factories Act, 1948 (63 of 1948), or the Mines Act, 1952 (35 of 1952), apply;
(e) xxxxx
(f) xxxxx
(g) xxxxx
(h) xxxxx
(i) "employer", in relation to an establishment, means the owner thereof, and includes,--
(i) in relation to a building or other construction work carried on by or under the authority of any department of the Government, directly without any contractor, the authority specified in this behalf, or where no authority is specified, the head of the department;
(ii) in relation to a building or other construction work carried on by or on behalf of a local authority or other establishment, directly without any contractor, the chief executive officer of that authority or establishment;
(iii) 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;"
iii) Section - 3 of the Cess Act, 1996 deals with 'Levy and Collection of Cess', and Section 3 (1) is relevant for the purpose of the present case and the same is extracted as under: 10
KL,J W.P. No.24925 of 2009 "Section 3 (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 (27 of 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."
iv) The aims and objectives of the aforesaid Acts were fell for consideration before the Hon'ble Supreme Court in Uttar Pradesh Power Transmission Corporation Limited v. CG Power and Industrial Solutions Limited1, and the Apex Court held that the condition precedent for imposition of cess under the Cess Act is the construction, repair, demolition or maintenance of and/or in relation to a building or any other work of construction, transmission towers, in relation inter alia to generation, transmission and distribution of power, electric lines, pipelines, etc. Mere installation and/or erection of pipelines, equipments for generation or transmission or distribution of power, electric wires, transmission towers, etc. which do not involve construction work are not amenable to cess under the Cess 1 . (2021) 6 SCC 15 11 KL,J W.P. No.24925 of 2009 Act. A contractor who enters into a pure supply contract is statutorily exempted from levy under BOCW Act. Paragraph Nos.50, 51, 52, 53 and 54 are relevant and the same are extracted as under:
"50. In Lanco Anpara Power Ltd. v. State of U.P. [(2016) 10 SCC 329 : (2017) 1 SCC (L&S) 110] , this Court held: (SCC p. 348, para 37) "37. We now advert to the core issue touching upon the construction of Section 2(1)(d) of the BOCW Act. The argument of the appellants is that language thereof is unambiguous and literal construction is to be accorded to find the legislative intent. To our mind, this submission is of no avail. Section 2(1)(d) of the BOCW Act dealing with the building or construction work is in three parts. In the first part, different activities are mentioned which are to be covered by the said expression, namely, construction, alterations, repairs, maintenance or demolition. Second part of the definition is aimed at those buildings or works in relation to which the aforesaid activities are carried out. The third part of the definition contains exclusion clause by stipulating that it does not include 'any building or other construction work to which the provisions of the Factories Act, 1948 (63 of 1948), or the Mines Act, 1952 (35 of 1952), applies'. Thus, first part of the definition contains the nature of activity; second part contains the subject-matter in relation to which the activity is carried out and the third part excludes those building or other construction work to 12 KL,J W.P. No.24925 of 2009 which the provisions of the Factories Act or the Mines Act apply."
51. The clear statutory scheme of the BOCW Act excludes a supply contract from within its ambit. On behalf of Respondent 1, it is pointed out that several public authorities and corporations, such as the Delhi Metro Rail Corporation and Karnataka Power Transmission Corporation Ltd., have issued instructions that no cess under the BOCW Act is leviable on a contract for supply of goods. Copies of the Kptcl Circulars dated 22-8-2012 and 28-8-2012 to this effect are annexed to the rejoinder of Respondent 1 in the High Court.
52. Under Section 2(1)(g) of the BOCW Act the term "Contractor" means a person who undertakes to produce a given result for any establishment, other than a mere supply of goods or articles of manufacture, by the employment of building workers or who supplies building workers for any work of the establishment and includes a sub-contractor. Respondent 1 is apparently not a contractor, within the meaning of Section 2(1)(g) of the BOCW Act in respect of the first, second and fourth contracts. Nor is Respondent 1 employer within the meaning of Section 2(1)(i) of the BOCW Act. Section 2(1)(i) of the BOCW Act defines "employer" to include the contractor in relation to a building and other construction work carried on by or through a 13 KL,J W.P. No.24925 of 2009 contractor or by employment of building workers supplied by a contractor. Respondent 1 neither falls within the definition of "contractor" in Section 2(1)(g) nor 2(1)(i)(iii) of the BOCW Act. Apparently, Respondent 1 is not liable to cess in respect of the first, second and fourth contracts.
53. Cess under the Cess Act read with the BOCW Act is leviable in respect of building and other construction works. The condition precedent for imposition of cess under the Cess Act is the construction, repair, demolition or maintenance of and/or in relation to a building or any other work of construction, transmission towers, in relation inter alia to generation, transmission and distribution of power, electric lines, pipelines, etc. Mere installation and/or erection of pipelines, equipments for generation or transmission or distribution of power, electric wires, transmission towers, etc. which do not involve construction work are not amenable to cess under the Cess Act. Accordingly no intimation or information was given or any return filed with the assessing officer under the Cess Act or the Inspector under the BOCW Act in respect of the first and second contracts, either by Upptcl or by Respondent 1.
54. A contractor who enters into a pure supply contract is statutorily exempted from levy under the BOCW Act. The contract in question is a supply 14 KL,J W.P. No.24925 of 2009 contract as would be evident from Clause 8.7 of the Special Conditions of Contract which states:
"The contract shall be a 'Divisible Contract' with single point responsibility, hence no works contract tax shall be payable and the Purchaser shall not bear any liability on this account." "
v) Learned standing counsel appearing for respondent Nos.1 to 5 relied on the judgment rendered by this Court in V. Sambi Reddy v. The South Central Railway (SCR), Secunderabad2. In the said cases, nature of the work is construction of boundary wall to prevent encroachment, repairs to ballast retaining walls, repairs to Pitching of banks, steps etc. for bridges etc. Therefore, there is construction of work and the petitioners therein are liable to pay the aforesaid cess at 1%. Thus, the facts of the said case are different to the facts of the present case. In the present case, it is only a supply contract and there is no construction activity in terms of Section - 2 (1) (d) of the BOCW Act. Therefore, respondent No.5 cannot levy the cess under Section - 3 (1) of the Cess Act, 1996.
vi) In view of the aforesaid law laid down by the Apex Court, coming to the facts of the present case, the nature of work mentioned 2 . W.P. No.10601 of 2011 & batch, decided on 24.11.2022 15 KL,J W.P. No.24925 of 2009 in the aforesaid agreements dated 06.07.2006 and 28.11.2008 is as follows:
"Supply and stacking of 50mm machine crushed stone ballast to Railways specification at Railway Depot at Parbhani Depot in Nanded Division and loading the same into Railway hoppers/wagons by mechanical/manual means. (App.quantity): 1,44,000 Cum.
(One Lakh forty four thousand Cum only)"
Thus, there is no building or other construction work and it is only supply contract i.e., supply and stacking of 50mm machine crushed stone ballast at the place mentioned above.
8. Conclusion:
i) As rightly contended by learned counsel for the petitioner that there is no labour element involved in the contract and there is no construction or any other activity involved. It is only a supply contract. Therefore, respondent No.5 cannot deduct 1% cess from the bills of the petitioner pursuant to the memo, dated 03.03.2009 issued by respondent No.2. In view of the same, respondent No.5 is directed to refund an amount of Rs.57,787/- deducted by it from the 31st bill of the petitioner paid to it on 31.08.2009 within four (04) weeks from the date of receipt of copy of this order. Respondent No.5 is also directed 16 KL,J W.P. No.24925 of 2009 to clear all the bills, if not already cleared to the petitioner without deducting the aforesaid 1% cess from the bills of the petitioner.
ii) With the aforesaid directions, this writ petition is allowed.
However, there shall be no order as to costs.
As a sequel, the miscellaneous petitions, if any, pending in the writ petition shall stand closed.
_________________ K. LAKSHMAN, J 5th June, 2023 Mgr