Allowed

M/S Sona Industrial Elastomers v. Employees Provident Fund Organisation

Karnataka HC12 Aug 2024WP/64432/2011

Case brief

AI extract

What is this about?

A partnership firm challenged a PF assessment demanding contribution computed on gross salary and the appellate tribunal's dismissal of its appeal for default. The court held contribution is payable on basic wage plus specified allowances, not gross salary, quashed the assessment and remanded to the original authority for fresh orders within three months.

What did the court decide?

Assessment order quashed, tribunal order effaced, matter remanded to respondent No.2 for fresh orders within three months; excess deposit to be refunded.

M/S Sona Industrial Elastomers Vs… — Pension and Retirement Benefits | Karnataka HC (2024)

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NC: 2024:KHC-D:11460 WP No. 64432 of 2011

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IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH

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DATED THIS THE 12^TH DAY OF AUGUST, 2024

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BEFORE

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THE HON'BLE MR. JUSTICE RAVI V.HOSMANI

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WRIT PETITION NO.64432 OF 2011 (L-PF)

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BETWEEN:

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M/S. SONA INDUSTRIAL ELASTOMERS, A PARTNERSHIP FIRM REPRESENTED BY ITS PARTNER, SHRI DHIREN S/O. JITENDRA THAKKAR, NO.17, I GATE, INDUSTRIAL ESTATE, GOKUL ROAD, HUBBALLI – 580 030, PHONE NO.2330061.

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…PETITIONER

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(BY SRI S. S. GUNDI, ADVOCATE)

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AND:

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EMPLOYEES PROVIDENT FUND ORGANISATION, REPRESENTED BY THE REGIONAL PROVIDENT FUND COMMISSIONER, IV FLOOR, SRINATH COMPLEX, NEW COTTON MARKET, HUBBALLI – 29.

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Digitally signed by CHANDRASHEKAR LAXMAN KATTIMANI Location: High Court of Karnataka

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THE ASSISTANT PROVIDENT FUND COMMISSIONER, IV FLOOR, SRINATH COMPLEX, NEW-COTTON MARKET, HUBBALLI – 29.

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…RESPONDENTS

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(BY SRI P.V.GUNJAL, ADVOCATE FOR R1 AND R2)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO STAY THE ORDER BEARING NO.KN/HBL/ENF/C-62/50376/2637/2010/4035 DATED 24.01.2011 PASSED BY RESPONDENT NO.2 I.E. ASSISTANT PROVIDENT FUND COMMISSIONER, SUB-REGIONAL OFFICE, HUBBALLI, WHICH IS PRODUCED AT ANNEXURE-B AND ALL FURTHER PROCEEDINGS PURSUANT THERE TO IN THE INTEREST OF JUSTICE AND EQUITY. STAY THE ORDER DATED 01/06/2011 PASSED

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NC: 2024:KHC-D:11460 WP No. 64432 of 2011

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BY APPELLATE TRIBUNAL, NEW DELHI, IN A.T.A NO. 337(6)2011 WHICH IS PRODUCED AT ANNEXURE-J1 AND ETC.,

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THIS WRIT PETITION, COMING ON FOR PRELIMINARY HEARING - B GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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ORAL ORDER

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Challenging order dated 24.01.2011, passed by respondent No.2 Assistant Provident Fund Commissioner, Hubballi at Annexure-B and order dated 1.06.2011, passed by Appellate Tribunal, Hubballi at Annexure-J1, this writ petition is filed.

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Sri Suresh S Gundi, learned counsel for petitioner submitted that petitioner is partnership firm engaged in business of manufacturing of rubber moulded components at Hubballi. It was submitted that petitioner was covered under Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (for short ‘Act’) from July 2009 and made deductions of P.F. with reference to basic wage of employees and remitted to respondents. However, on 29.11.2010, petitioner received notice issued by respondent no.2 as per Annexure-A, wherein following deficiencies were projected.

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NC: 2024:KHC-D:11460 WP No. 64432 of 2011

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Provident Fund contribution for the period from 7/2009 to 3/2010 in accordance with the provisions of the Employees’ Provident Fund Scheme, 1952.

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Pension Fund contribution for the period from 7/2009 to 3/2010 in accordance with the provisions of the Employees’ Pension Scheme, 1995.

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Insurance Fund contribution for the period from 7/2009 to 3/2010 in accordance with the provision of Employees’ Deposit Linked Insurance Scheme, 1976.

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Administrative Charges/Inspection Charges to the Fund for the period from 7/2009 to 3/2010 in accordance with the provision of the Employees’ Provident Fund Scheme, 1952.

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Administrative Charges/Inspection Charges to the Fund for the period from 7/2009 to 3/2010 in accordance with the provision of the Employees’ Deposit Linked Insurance Scheme, 1976.

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It was submitted that in said notice, respondent

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no.2 had over written “non-enrolling employees”. In response, petitioner appeared and produced cash book, ledger and balance sheet, salary register for said period and

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NC: 2024:KHC-D:11460 WP No. 64432 of 2011

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also cash book (for year 2009-2010). It was submitted, though ledger account indicated only gross salary of employees, as per salary register (by excluding allowances), provident fund contribution was deducted only on basic salary. Rejecting said explanation, respondent no.2 passed order holding that petitioner had failed to pay provident fund contribution as per law and raising demand.

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Aggrieved by same, petitioner had initially filed review petition. On its rejection petitioner preferred appeal before Appellate Tribunal. But, since Appellate Tribunal was located at New-Delhi, petitioner filed application for taking up matter during camp sitting at Goa or Bangalore. Said application was rejected and thereafter, on account of nonappearance, appeal was dismissed as per Annexure-J1. It was submitted, as per Section 2 (b) of Act i.e. definition of ‘basic wage’, included all emoluments earned by employees while on duty, but does not include cash value of any food concession, dearness allowance, house rent allowance, overtime allowance, bonus commission or any other similar allowances payable to employees and also excluded present

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made by employer. Thus, contribution was to be on basic wage and returns filed by petitioner were in order. Without taking note of same, impugned order at Annexure-B was passed and appeal rejected as per Annexure-J1. Same would be untenable and sought for quashing of same.

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It was also submitted, even if petitioner’s explanation was unacceptable, fact that gross salary in respect of Vinod Shanbhag was Rs.11,165/-, Suresh Patgar was Rs.8,500/-, Ramesh Satappanavar was Rs.8,150/-, which were much above notified ceiling limit for period of assessment. Therefore, on either of accounts, petitioner was entitled for relief. On above grounds sought for allowing writ petition.

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On other hand, Sri P.V.Gunjal, learned counsel for respondents sought to oppose writ petition. It was submitted, petitioner’s contention that deduction was to be only on basic pay was misconceived and contrary to Regulation 29 of Employees’ Provident Fund’s Scheme, 1952 (for Short Scheme). It was submitted that as per said regulation, employer was required to pay contribution at rate

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NC: 2024:KHC-D:11460 WP No. 64432 of 2011

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of 10% of basic wage, dearness allowance (including cash value of any food concession) and retaining allowances payable to each employees to whom it applies. Therefore, assessment by respondent no.2 was justified and there was no merit in contention of petitioner. It was also submitted though notified ceiling limit prevalent for period of assessment was Rs.6,500/-, deduction of contribution would be as per declaration given jointly by petitioner and its employees, but same require to be verified by authorities.

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In reply, learned counsel for petitioner submitted that coverage in respect of said three employees would arise only in case of an express declaration given by employer and employee and if, no such declaration was given, said aspect has to be examined by authorities.

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Heard learned counsel and perused writ petition record.

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From above, petitioner firm being subjected to provisions of Act with allotment of code KN/HBL/50376 is not in dispute. Payment of contribution by petitioner to

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NC: 2024:KHC-D:11460 WP No. 64432 of 2011

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respondents is also not in dispute, even for period covered under impugned order/notice. While petitioner contends that remittance calculated on basic wage of employees was proper, respondents contend that same has to be on gross salary, as was being done by petitioner for prior period. Dispute also extends to applicability of provisions of Act insofar as three employees, whose gross salary was above notified ceiling limit of Rs.6,500/-.

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Perusal of notice at Annexure-A as extracted

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above would indicate that petitioner was called upon to substantiate remittance being in accordance with law. Though period was indicated notice is vague insofar as specific violation alleged. Overwriting by hand ‘non-enrolled employees’ on notice would make it appear that violation was in respect of non-enrolled employees. However, impugned order passed by respondent no.2 at Annexure-B is on totally different aspect, that contribution was not on gross salary. While definition of ‘Basic Pay’ in provisions of Act, would exclude dearness allowance and other allowances, Regulation 29 of Scheme mandates would require

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contribution to be with reference to basic pay and other allowance and not gross salary. Thus, contribution has to be on basic wage + dearness allowance + cash value of any food concession and retaining allowance put together. It would also be clear that house rent allowance, attendance allowance, performance allowance have to be excluded.

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While passing order at Annexure-B, respondent no.2 erred in not taking note of same and there is no examination of petitioner’s contention that gross salary of three employees namely Vinod Shanbhag, Suresh Patgar, Ramesh Satappanavar was above ceiling limit of Rs.6,500/as contended in review petition. Unless there is specific finding about joint declaration by employer and employees for coverage insofar as said employees, assessment would be contrary to law. Therefore, on both counts, impugned order at Annexure-B would require interference.

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At this stage, it seen that petitioner has availed Appellate remedy, but same as per Annexure-J1 was dismissed for default. Though under normal circumstances, petitioner would be relegated to pursue remedy of appeal, in

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NC: 2024:KHC-D:11460 WP No. 64432 of 2011

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view of fact that writ petition has been pending from year 2011 and order passed by original authority is ex-facie, erroneous as held above, it is found fit to relegate matter back to original authority i.e. respondent no.2. Hence, following:

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ORDER

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i. Writ Petition is allowed.

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ii. Impugned assessment order at Annexure-B is quashed, consequently order at Annexure – J1 would stand effaced.

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iii. Respondent no.2 is directed pass fresh orders taking note of computation of salary as per wage register, exclude allowances not falling within scope of Regulation 29 of Scheme and after giving specific finding whether any joint declaration in respect of three employees, whose gross salary was above ceiling limit was given by employer-employee and pass fresh orders within a period of three months from date of receipt of certified copy of this order.

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