Disposed

Emco Limited v. Karnataka Power Transmission Corporation Limited

Karnataka HC10 Sept 2024WP/8387/2017

Case brief

AI extract

What is this about?

A contractor sought refund of 1% BOCW cess deducted on supply and erection portions of five substation contracts. Relying on an Apex Court decision exempting pure supply contracts from BOCW cess, the court directed refund for three projects' supply and erection portions within three months, with 6% interest thereafter.

What did the court decide?

Refund of cess on supply and erection portions of Soundatti, Vajramatti and Hubballi projects within three months; 6% interest if delayed.

Emco Limited Vs Karnataka Power… — Contract and Commercial Disputes | Karnataka HC (2024)

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1 - NC: 2024:KHC:37189 WP No. 8387 of 2017

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 10^TH DAY OF SEPTEMBER, 2024 BEFORE

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THE HON'BLE MRS JUSTICE K.S. HEMALEKHA WRIT PETITION NO.8387 OF 2017 (GM-KEB)

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BETWEEN:

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EMCO LIMITED A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT N-104, MIDC AREA, JALGAON-425003 AND REPRESENTED HEREIN BY ITS AUTHORISED SIGNATORY MR. GANESH TAWARI. ... PETITIONER

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(BY SMT. POORNIMA HATTI, ADVOCATE)

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AND:

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Digitally signed by MAHALAKSHMI B M Location: HIGH COURT OF KARNATAKA

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KARNATAKA POWER TRANSMISSION CORPORATION LIMITED “CAUVERY BHAVAN”, 3^RD FLOOR, DISTRICT OFFICE ROAD, POST BOX NO.9990, BANGALORE-560009. REPRESENTED BY THE EXECUTIVE ENGINEER, MAJOR WORK NORTH DIVISION & CHIEF ENGINEER, ELECTRICITY, TENDER AND PROCUREMENT. ... RESPONDENT (BY SRI SHIRISH KRISHNA, ADVOCATE)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO DIRECT RESPONDENT TO FORTHWITH REFUND AN AMOUNT OF RS.78,76,057 AS ON AUGUST 24, 2011, DEDUCTED AS LABOUR CESS TAKING INTO ACCOUNT THE SUPPLY PORTION OF THE PROJECT TOGETHER WITH INTEREST AT THE RATE OF 18% PER ANNUM AT ANNEXURE-A DATED 18.01.2007 AND ETC.

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THIS WRIT PETITION COMING ON FOR FURTHER HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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2 - NC: 2024:KHC:37189 WP No. 8387 of 2017

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CORAM: HON'BLE MRS JUSTICE K.S. HEMALEKHA

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ORAL ORDER

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Petitioner is before this Court against withholding principal amount of Rs.78,76,057/- as 1% cess towards supply of goods under the Building and Other Construction Workers’ (Regulation of Employment and other Condition of Service) Act, 1996 (“BOCW Act”) and the Rules framed there under (BOCW Rules).

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Respondent-Karnataka Power Transmission

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Corporation Limited (‘the Corporation’ for short) issued

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work orders to the petitioner in three categories:

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i. Contract for Civil Works

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ii. Contract for supply of materials and

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iii. Contract for erection work

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The work related to various turnkey projects for

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the development / establishing substation at Begur, Nimhans, Soundatti, Vajramatti and Hubballi for the purpose of generating and supplying electricity. The time

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lines leading upto the execution of contract for each of the

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said projects are set out below:

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Sr. No.	Project site	Offer submitted by the Petitioner	Letter of Intent issued by the Respondent	Letter of Acceptance issued by the Petitioner
1.	Begur	November 8, 2004	April 4, November 30, 2005	In and around April 2005
2.	Nimhans	February 25, 2006	June 30, 2006	In and around July 2006
3.	Soundatti	May 10, 2006	December 8, 2006	December 19, 2006
4.	Vajramatti	May 14, 2006	December 8, 2006	December 19, 2006
5.	Hubli	March 13, 2007	October 9, 2007	October 16, 2007

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Respondent issued separate orders in respect of

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each project, i.e., letter of intent for supply portion, erection portion and the civil works and the petitioner furnished separate bank guarantee and separate orders were placed by the respondent in respect of each contract. The Government of Karnataka in light of the enforcement of BOCW Act vide notification dated 01.11.2006, formulated the Building and Other Construction Workers’ (Regulation of Employment and Conditions of Service)

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NC: 2024:KHC:37189 WP No. 8387 of 2017

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(Karnataka) Rules, 2006 and thereafter, the Department

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of Labour and Welfare vide Government Order dated 18.01.2007 directed as under:

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“All government departments, public sector undertakings and other governmental agencies / bodies carrying out any building or other construction works which are covered under Section 2[d] of the main Act shall, in case the work is carried out through a Contractor deduct 1% of the amount of the cost approved as per the tender notification from the bill at the time of making payment to the contractors...”

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“Where tender has been submitted or finalized and work is entrusted to a contractor prior to 01.11.2006, in such cases 1% Cess has to be paid by the concerned division to Board…”

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Petitioner commenced the execution of work as stipulated under the contract of each project on the terms and conditions more particularly set out in the contract executed under each project. In light of enforcement of BOCW Act and Rules framed there under by the State Government, the respondent commenced deducting cess

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@ 1% of the total value of each project. The cess was to be deducted @ 1% of the cost of construction, as set out in Rule 3 of the BOCW Rules. Rule 3 of BOCW Rules stipulates that the “cost of construction” includes all expenditures incurred by the employer in connection with the building or other construction work and does not include the cost of material used in the construction. The petitioner coming to know about the said fact, when the payment for bills raised by the petitioner in December, 2007 were released by the respondent in January, 2008, deduction was noticed by the petitioner. It is pertinent to note that on 13.03.2013, the respondent issued clarification to regulate the refund of 1% cess on the supply portion in respect of the tenders invited / finalized and works entrusted prior to 01.11.2006 by the respondent. The relevant portion of the letter is as under:

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“a) In respect of tenders finalized and works entrusted prior to 01.11.2006, refund of 1% cess on supply portion are to be passed on to the agencies in case the same was deducted and remitted to the

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Karnataka State Building & Other Construction Workers Welfare Board.

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b) In respect of tenders invited prior to the adoption of the provisions of the said Act and LOA/DWA’s were issued with or without a clause for deduction of cess, in such cases the refund of cess on supply portion are to be passed on to the agencies in case the same was deducted and remitted to Welfare Board.

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c) In respect of works awarded as per para ‘a’ and ‘b’ above, are still under progress the case on supply portion should not be deducted. On erection & civil portion cess should be deducted and remitted to the Welfare Board.

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d) In respect of tenders invited and finalized after the adoption of the said Act, the refund of 1% cess towards supply portion are to be passed on to the KPTCL....”

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The respondent further clarified by Circular

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dated 08.01.2015 that “where the tender has been submitted or finalized and work is entrusted to a contractor prior to 01.11.2006, in such cases, 1% cess has

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to be paid by the concerned division to Board as mentioned supra”.

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Learned counsel for the petitioner submits that the issue involved in this matter is no more res integra in light of the decision of the Apex Court in the case of Uttar Pradesh Power Transmission Corporation Limited and another Vs. CG Power and Industrial Solutions Limited and another¹ (Uttar Pradesh Power Transmission Corporation Limited) , wherein, the Apex Court has held that a contractor who enters into a pure supply contract is statutorily exempted from levy under the BOCW Act, further 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 and at paragraph Nos.51, 53 and 54 has held as under:

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1 (2021) 6 SCC 15

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“ 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 28-82012 to this effect are annexed to the rejoinder of Respondent 1 in the High Court.

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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

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under the BOCW Act in respect of the first and second contracts, either by UPPTCL or by Respondent 1.

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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 contract as would be evident from Clause 8.7 of the Special Conditions of Contract which states:

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“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.”

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Learned counsel for the respondent-Corporation

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tries to make a distinction by placing reliance on the circular issued on 27.05.2016 to contend that by the Circular, it has been clarified that the work entrusted to the contractor prior to 01.11.2006 is the ultimate criterion (cut off) for considering refund of cess amount as per the amendment issued on 18.01.2015.

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In the instant case, as stated supra, the particulars of the project, offer submitted, letter of intent,

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letter of acceptance, total labour cess deducted by the

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respondent is as under:

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SR. NO.	PROJECT	Offer submitted by the Petitioner	Letter of Intent issued by the Respondent	Letter of Acceptance issued by the Petitioner	LABOUR RES	CESS DEDU PONDENT (	CTED BY INR)	TOTAL LABOUR CESS DEDUCTED BY
					Supply	ETC	Civil	RESPONDENT (INR)
1.	Begur	November 8, 2004	April 4, November 30, 2005	In and around April 2005	5,076	4,898	33,841	43,815
2.	Nimhans	February 25, 2006	June 30, 2006	In and around July 2006	7,28,605	34,681	1,01,663	8,64,949
3.	Soundatti	May 10, 2006	December 8, 2006	December 19, 2006	19,95,347	54,642	4,82,282	25,32,271
4.	Vajramatti	May 14, 2006	December 8, 2006	December 19, 2006	19,84,228	45,338	5,51,077	25,80,643
5.	Hubli	March 13, 2007	October 9, 2007	October 16, 2007	31,62,801	71,831	8,28,894	40,63,526
	TOTAL				78,76,057	2,11,390	19,97,757	1,00,85,204

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As stated supra, in the case of Uttar Pradesh

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Power Transmission Corporation , the Apex Court has

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held that 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., and mere installation

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and/or erection of pipelines, equipments for generation or transmission or distribution of power, electric wires, transmission towers etc., would not involve the supply of materials and are not amenable to Cess under the Cess Act.

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The project at Begur, Nimhans is prior to 01.11.2006 and as such, the petitioner is entitled for the entire cess deducted by the respondent. In respect of the projects at Soundatti, Vajramatti and Hubballi, 1% cess is applicable to the petitioner only in respect of civil constructions and not to the supply and the erection as deducted by the respondent.

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For the foregoing reasons, this Court pass the following:

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ORDER

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i. Writ petition stands disposed of.

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ii. Respondent is directed to refund the cess deducted

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by the respondent to the project at Soundatti, Vajramatti and Hubballi in respect of supply and

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erection, within a period of three months from the date of release of this order, failing which, the petitioner is entitled for interest at the rate of 6% till

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the date of realization.

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Sd/(K.S. HEMALEKHA) JUDGE

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MBM List No.: 1 Sl No.: 26

Emco Limited v. Karnataka Power Transmission Corporation Limited

Case brief

What is this about?

What did the court decide?

Emco Limited v. Karnataka Power Transmission Corporation Limited

Case brief

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