Disposed

Jayamohan Reddy Pochimireddygari, v. The State of Andhra Pradesh

Andhra Pradesh HC20 Sept 2023WP/522/2020

Case brief

AI extract

What is this about?

Single Judge Bench held that Government agencies cannot deduct Labour Cess @1% from contractor bills unless the cess amount was explicitly included in the original work estimates. Petitioners are not liable for deductions where estimates were not revised to include the cess as per prior precedents.

What did the court decide?

Respondents directed to verify bills and only deduct 1% cess if corresponding amount is included in estimates; otherwise, no recovery to be made from petitioners.

Jayamohan Reddy Pochimireddygari, Vs The State of Andhra… — Income Tax | Andhra Pradesh HC (2023)

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THE HON’BLE SRI JUSTICE VENKATESWARLU NIMMAGADDA

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W.P.Nos.16156, 318, 522, 3055, 4086, 12758, 14257, 14853, 15917, 15979, 21720, 25604 OF 2020; W.P.Nos. 3154, 3672 OF 2021

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W.P.Nos.5951, 15800, 17273, 17650, 18490, 18550, 18574, 18576, 18797, 19336, 19377 OF 2019;

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W.P.Nos.20177, 30641, 30672 OF 2018;

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W.P.No.34074 OF 2017

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COMMON ORDER:-

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The petitioners in these batch of writ petitions are civil contractors registered with various departments of the Government. The departments and agencies that entrusted works to the petitioners are taking steps to deduct Labour Cess @ 1% from the bills payable to the petitioners.

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According to the petitioners, when the works were entrusted, the recovery of 1% labour cess was not contemplated and no such amount at the rate of 1% was included in the work estimates prepared by the respondents. The grievance of the petitioners is that, without including the amount towards Labour Cess @ 1% in the work estimates, the same cannot be recovered and the respondents did not empower for effecting deduction of the said Labour Cess amount at 1% out of bills payable to the petitioners.

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Respondents filed counter affidavit seeking to justify their action in proposing to recover the amount towards Labour Cess and denied their obligation in inclusion of proposed labour cess amount in work estimates

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as claimed by the petitioners. It is submitted that, as per norms of the contract, in Condition No.7.3.2, Labour Cess @ 1% is provided in the Schedule-A Part-II (B). While making payment to the contractor, the amount will be paid to the Labour Department proportionately as per rules and Labour Cess will be recovered from the bills of the contractors amount, but not from the amount kept in Schedule A- Part-II(B). It is submitted that payment of Labour Cess is the responsibility of the contractor and deduction from the bills and remittance to the board is the responsibility of the Government.

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Heard learned counsel for the petitioners and learned Government Pleader for the respondents.

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The workers in the construction field are unorganized as well as unregulated and are not governed by the various legislations that are intended for the benefit of workmen of various industries and other sectors. With a view to take effective welfare measures for them, as like the other regulated work force, the Parliament enacted the Building and other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 („1996 Act‟ for short). Various aspects such as creation of fund, registration of workers/beneficiaries and issuance of identity cards were provided for. Committees are constituted at state and central levels to regulate the system and to see the welfare measures to reach the unorganized work force/labour in the civil construction sector.

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For the purpose of pooling necessary resources and to augment finances to carry out the objectives under the 1996 Act, the Parliament enacted the Building and other Construction Workers Welfare Cess Act, 1996 („Cess Act‟ for short). This makes it obligatory on the part of the employers to pay to the competent authority, cess at prescribed rate, which shall not be more than 2 % and less than 1% out of the value of the construction as determined under the provisions of the Act.

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The 1996 Act and Cess Act were enacted with the avowed policy and the object of protecting the interests of workers engaged in the buildings and other civil construction activity. These enactments apply to all the persons or institutions, which engage not less than 10 workers in construction or building work in the preceding twelve months. The manner in which the cess is to be administered is provided for under the Act. The Cess Act enables the competent authority to recover or collect cess at the prescribed rate which shall be between 1% and 2%. It is stated that the notification that was issued in this regard stipulates the cess at the rate of 1% only.

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The burden of payment in the form of cess must be borne by the agency which undertakes the construction. It is not an obligation that can be placed upon the contractors. The element of this levy cannot be compared with the service charges or profession tax which are squarely

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referable to the activity undertaken by the person or agency not the one for or on behalf of whom the activity is undertaken.

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It is not disputed that this Court, by order dated 22.10.2009 earlier held in a batch of writ petitions in W.P.Nos.11269 of 2009 & batch that the Government cannot be permitted to deduct the amount while making payments to the contractors and the occasion for an agency to deduct cess under the Cess Act would arise only when the corresponding amount is included in the work estimates and conversely if the amount representing the cess is not included in the work estimates, deductions cannot be made while making payments to the contractors. The above batch of writ petitions were disposed of with the following directions:

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(a) That the respondents shall include 1% cess in the estimates for the works which they propose to undertake, if the work continues for or beyond twelve months and involves engagement of 10 workers or more; and

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(b) That the respondents shall not deduct any amount towards cess, unless the corresponding amount is included in the estimates.

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Assuming that there existed any justification for their omission to include the amount payable towards cess in the work estimates, they cannot be permitted to deduct that amount while making payments to the contractors. In a way, it would amount to either penalizing the contractor or affecting the levy contrary to the provisions of 1996 Act. The consequences that flow from any violation of 1996 Act must in fact be directed towards agency that has undertaken construction. Therefore, the

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inescapable conclusion is that the occasion for an agency to deduct the cess under the Cess Act would arise only when the corresponding amount is included in the work estimates. Conversely, if the amount representing the cess, is not included in the estimates, deductions cannot be made while making payments to the contractors.

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In W.P.Nos.11269 of 2009 & batch dated 22.10.2009 and W.P.No.6090 of 2011 dated 11.04.2012, the High Court of Andhra Pradesh at Hyderabad observed that, the inaction on the part of the respondents in not refunding the amount already collected towards Labour Cess is held unsustainable and held that the petitioners were entitled for the amount recovered from them.

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One of the contention made by the learned Government Pleader is that the ratio laid down by the Division Bench of the High Court of Andhra Pradesh in W.A.No.1012 of 2013 & batch dated 06.08.2015 is applicable to the present facts of the case, as such the petitioners are not entitled to refund of already deducted amount and the respondents are at liberty to deduct the amount at the rate of 1% of cess from the bills payable to the petitioner. The question involved in W.A.No.1012 of 2013 & batch was “whether the works executed by the petitioners in the factory are the works incidental to and/or connected with the works of the factory and thus exempted from the provisions of The Building and Other Construction Workers‟ (Regulation of Employment and Conditions of Service) Act, 1996. In the said case, the case of contractors, in short, is that the company is a

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factory established under Act of 1948 and is, therefore, expressly excluded from the application of the provisions of Act No.27. According to contractors, under any circumstances, factories of the companies are covered by the provisions of Act of 1948, and are, therefore, not liable to pay 1% cess under the provisions of Act No.28. The provisions contained in Act No.27, in particular, the definition of “building or other construction work” would not cover the structures such as blast furnace and, therefore, they are not liable to either deduct 1% cess or remit any such amount to the Government under the provisions of the said Act.

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On perusal of the above judgment, it is evident that the question involved in the said case was as to applicability of Labour Cess. But, in the present case, the question involved was whether the petitioners are entitled for such reduction in Labour Cess or not, as such, the ratio laid down in W.A.No.1012 of 2013 & batch cannot be applied to the present facts of the case, and the contention of the learned Government Pleader is rejected.

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Whether it is a case of proposed deduction from the bills or the case of refund of the amounts already deducted, the respondents have no right to recover any amount from the contractors towards cess without first including the same in the estimates and such deduction towards cess from the bill amounts without there being any corresponding inclusion of the said amount in the estimates is bad in law and the petitioners are certainly not liable for deduction from their bills. The action of the respondents in

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proposing to deduct the Labour Cess @ 1% from the bills payable to the petitioners is therefore held unsustainable.

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Whether it is a case of proposed deduction from the bills or the case of refund of the amounts already deducted, the respondents have no right to recover any amount from the contractors towards cess without first including the same in the estimates and such deduction towards cess from the bill amounts without there being any corresponding inclusion of the said amount in the estimates is bad in law and the petitioners are certainly not entitled for deduction from the bills.

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Therefore, the writ petitions are disposed of with the following directions:

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a. The respondents shall verify the bills of the petitioners and if the corresponding amount is included in the estimates, the respondents can deduct amount as prescribed at the rate of 1% towards Labour Cess.

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b. Upon verification, if the respondents found that the corresponding amount is not included in the estimates, the respondent shall not take steps to deduct the amount/recover the amount from the petitioners towards Labour Cess.

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Consequently, miscellaneous applications pending if any, shall also stand closed.

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____________________________________________ JUSTICE VENKATESWARLU NIMMAGADDA

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Date:20.09.2023

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Jayamohan Reddy Pochimireddygari, v. The State of Andhra Pradesh

Case brief

What is this about?

What did the court decide?

Jayamohan Reddy Pochimireddygari, v. The State of Andhra Pradesh

Case brief

What is this about?

What did the court decide?

What the court decided

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