Allowed

G4S Facility Services (India) Private Limited v. the Presiding Officer

Kerala HC2 Jun 2022WP(C)/4879/2022

Case brief

AI extract

What is this about?

The Kerala High Court allowed a writ petition challenging a Provident Fund appeal rejection. The court distinguished a Supreme Court precedent regarding universal evasion by holding that since payments were made only to select employees, the specific liability to contribute did not apply.

What did the court decide?

The findings in the challenged orders are set aside and the Writ Petition is allowed. Exts.P3 and P7 are set aside.

G4S Facility Services (India) Private Limited… — Labour and Industrial Disputes | Kerala HC (2022)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR. JUSTICE AMIT RAWAL

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THURSDAY, THE 2ND DAY OF JUNE 2022 / 12TH JYAISHTA, 1944

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WP(C) NO. 4879 OF 2022

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PETITIONER:

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G4S FACILITY SERVICES (INDIA) PRIVATE LIMITED,
TC 9/2041(1), OPPOSITE ALAKAPURI AUDITORIUM, KOCHAR
ROAD, SASTHAMANGALAM PO., THIRUVANANTHAPURAM - 695 010,
REPRESENTED BY THEIR HR LEAD, SREELAL D NAIR,
AGED 32 YEARS, SON OF P.R.DASAPPAN NAIR, RESIDING AT
HOUSE NO.203, K.K.ROAD, VAZHAKKALA, KOCHI - 682 024.

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BY ADVS.
B.ASHOK SHENOY
P.S.GIREESH
ARJUN R NAIK

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RESPONDENTS:

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1 THE PRESIDING OFFICER, CENTRAL GOVERNMENT INDUSTRIAL TRIBUNAL CUM LABOUR COURT, KERALA STATE HOUSING BOARD BUILDING, 8TH FLOOR, MANORAMA JUNCTION, KADAVANTHRA - 682 020.

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2 THE ASSISTANT PROVIDENT FUND COMMISSIONER, EMPLOYEES PROVIDENT FUND ORGANISATION, REGIONAL OFFICE, BHAVISHYA NIDHI BHAWAN, P.B.NO.1016, PATTOM P.O., THIRUVANANTHAPURAM - 695 004.

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BY ADV NITA.N.S., SC, ASSISTANT PROVIDENT FUND
COMMISSIONER

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THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON
02.06.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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JUDGMENT

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Petitioner is a private limited company engaged in the business of providing ‘Facility and House-keeping Services’ to the various establishments in different places throughout India and is governed by the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as ‘1952 Act’, for short) having assigned registration number KR/TVM/22096. The contribution of all the employees was on time being deposited in the account to avoid the wrath of the penal provisions of the Act, but was astounded to receive a notice dated 13.04.2016 from the office of Assistant Provident Fund Commissioner – respondent No.2 proposing to undertake an enquiry for determination of the amount payable by the petitioners for the period March, 2011 to July, 2015, primarily on the ground that an attempt to evade the payment of Provident Fund dues in respect of the employees towards the other allowances had been made. Aforementioned notice was issued on

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the basis of the reports dated 07.10.2013 and 14.08.2015 of the Enforcement Officer whereby it was found that petitioner company was indulging into splitting up of salary i.e., of the few employees as emanated from the pay slips where certain employees were given the allowances like site inspection, conveyance allowance and ERNI component of wages, thus it was a camouflage to evade the payment of contributions of the said employees. Petitioner submitted a detailed reply to the show cause notices but the competent authority vide impugned order dated 29.12.2016 Ext.P6 imposed the liability of Rs.7,00,000/-(Rupees seven lakhs only) on the allowances alone. An appeal Ext.P4 by raising detailed grounds was filed entailing into dismissal by the Tribunal vide order dated 06.04.2021 Ext.P7.

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Mr.B.Ashok Shenoy, learned counsel appearing on behalf of the petitioner in support of the grounds taken in the writ petition made the following submissions:

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(i) The order of the Provident Fund Commissioner

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particularly of a Tribunal, in fact prove and justify the plea of the petitioner company that it was not a universal act of the petitioner company in evading the payment of contribution towards the allowances in as much as that the Tribunal while examining the pay slips found that for a particular period the pay slips of few of the employees reveal the payment of the allowances referred above. In other words, the allowances were not paid to all the employees at par.

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(ii) Contributions were deposited towards the basic wage and Variable Dearness Allowance (VDA). The definition of the basic wage, if read in conjunction with Section 6 of the Act, would reveal that the allowances like HRA and others would not fall within the definition of basic wage.

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(iii) There was no willful or intentional evasion viza-viz non-contribution as alleged by the respondents.

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(iv) The report of the Enforcement Officer was on a stereo-type printed proforma. It did not disclose as to

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how many employees were being paid the allowances resulting into imposition of penalty on account of nonpayment of contribution.

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In support of the aforementioned contentions, the judgment of Hon'ble Supreme Court in Regional Provident Fund Commissioner and anothers Vs. Vivekananda Vidyamandir and Others and various other appeals decided together, reported as [(2020) 17 SCC 643)] has been cited to contend that in case the company is able to prove the contribution of the allowances was not a camouflage but only to the few and in the absence of the same, the liability incurred upon the establishment was found to be justified. The aforementioned judgment is based upon examination of the judgments on the issue and findings were arrived at on the basis of the facts. Thus the ratio decidendi culled out from the judgment would be applicable and not the ultimate findings. Thus all the judgments were based upon the facts.

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On the contrary, Smt.Nita N.S., learned Standing Counsel appearing on behalf of the Assistant Provident Fund Commissioner supported the findings rendered by the Provident Fund Commissioner and the Tribunal and submits that this Court while exercising the power of judicial review under Article 226 of the Constitution of India cannot sit on the armchair of an appellate authority to re-appraise and re-appreciate the evidence. A finding of fact has been arrived at by both the authorities on the basis of the material on record. Petitioner has failed to place on record any material countering the observations recorded on the basis of the inspection notes of the Enforcement Officer as the pay slips would reveal that it was an attempt to evade the payment of contributions towards the allowances paid to the employees. Once both the authorities have rendered the findings then the penultimate paragraph of the judgments cited by the petitioner would be squarely applicable in this case and urged this Court for dismissal of the writ petition.

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I have heard learned counsel for the parties and appraised the paper books.

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For understanding the controversy in issue and before dwelling on the arguments of the rival parties, it would be axiomatic to extract the provisions of Section 2(b) and 6 of Act, 1952. The same reads as under:

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"2. (b) "basic wages" means all emoluments which are earned by an employee while on duty or on leave or on holidays with wages in either case in accordance with the terms of the contract of employment and which are paid or payable in cash to him, but does not include-

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(i) the cash value of any food concession;

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(ii) any dearness allowance (that is to say, all cash payments by whatever name called paid to an employee on account of a rise in the cost of living), house-rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment.

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(iii) any presents made by the employer:

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6. Contributions and matters which may be provided for in Schemes. - The contribution which shall be paid by the employer to the Fund shall be ten

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WP(C) NO. 4879 OF 2022 -8-

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per cent of the basic wages, dearness allowance and retaining allowance if any, for the time being payable to each of the employees whether employed by him directly or by or through a contractor, and the employee's contribution shall be equal to the contribution payable by the employer in respect of him and may, if any employee so desires, be an amount exceeding ten per cent of his basic wages, dearness allowance and retaining allowance if any, subject to the condition that the employer shall not be under an obligation to pay any contribution over and above his contribution payable under this section:

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Provided that in its application to any establishment or class of establishments which the Central Government, after making such inquiry as it deems fit, may, by notification in the Official Gazette specify, this section shall be subject to the modification that for the words ten per cent, at both the places where they occur, the words twelve per cent shall be substituted:

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Provided further that where the amount of any contribution payable under this Act involves a fraction of a rupee, the Scheme may provide for the rounding off of such fraction to the nearest rupee, half of a rupee or quarter of a rupee.

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Explanation 1.-For the purposes of this section dearness allowance shall be deemed to include also the cash value of any food concession allowed to the

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employee.

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Explanation 2.-For the purposes of this section, "retaining allowance" means an allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services."

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The purport of the act unambiguously laid down that the HRA and other allowances would not be part of the basic wage. Thus, the establishment is required to make the contribution to the extent of ten percent(10%) on the said account. Now the question arises for adjudication is whether the Appellate Tribunal which noticed that the pay slips of few employees reflected the payment of allowances like site allowance, conveyance allowance and ‘ERNI’ allowance, could have rendered the establishment of camouflaging income of the employees plus basic wage to evade the payment of contribution to the percentage prescribed under the Act. There would have been a force in the findings had this exercise been done in respect of all the employees. The variation in respect of the employees rather proved the

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case of the establishment that the allowances aforementioned, were paid to only few employees who were on an assigned duty.

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I would be failing in duty in not extracting the relevant portion of the findings arrived at by the Tribunal and the same reads thus:

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“Hence he has taken into account the subsequent decisions of the Hon'ble Supreme Court and High Courts and arrived at a conclusion that some of these allowances will form part of basic wages and therefore will attract provident fund deduction. According to the learned Counsel for the respondent the pay structure of the appellant upto 05/2014 was basic, HRA and ERNI. From 05/2014 onwards the total emoluments are bifurcated into basic, VDA, ERNI, conveyance and site allowance. From 05/2014 onwards the appellant is paying contribution on basic and VDA. Hence specifically the question here is whether the allowances such as conveyance, site allowance and ERNI will form part of basic wages and therefore will attract provident fund deduction. From the pay slips produced by the appellant for few employees employed at Trivandrum branch, it is seen that for the period 05/2013 the appellant was paying basic and HRA to its employees and the contribution is confined

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to the basic wages. However in respect of few employees no HRA is seen paid by the appellant. The learned Counsel for the appellant could not explain the reason for different pay structure for different employees. In the payslips produced for few employees for the month of 03/2014, it is seen that the total salary is divided into basic and HRA and contribution was being paid on the basic wages. In the 12/2015 payslips the pay structure shown is basic wages and VDA. Hence the documents produced by the appellant itself shows that there is no consistency in the pay structure of the appellant establishment. It was also pointed out by the learned Counsel for the respondent that another unit covered within the State of Kerala under code no.KR/16539 the appellant establishment is remitting contribution on all the allowances from 04/2011. Hence it is very clear that the appellant has got different pay structure and different allowances for each branch unit. Hence the findings and dictum laid down in one case cannot be extended to another case without examining the factual situations of each branch unit. For the same reason the decisions of Punjab & Haryana High Court relied on by the appellant cannot be accepted in totality while deciding this appeal. However it is required to examine the matter in the facts and circumstances and also on the basis of the decisions of the Hon'ble Supreme Court as well as various High Courts in India.”

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There had been a series of judgments on the issue whereby the findings of the authorities have been challenged simply on the premise that the report of the Enforcement Officer was not based upon the actual and factual reports. There are certain establishments which are indulging into an act of camouflaging by splitting up the wages of the employees to come under the exemption clauses provided under Section 2(b) of the Act. But that would always be based upon the examination of the records. The record in hand as per the finding of the Tribunal supra reveals that it was not a uniform action of the establishment, an attempt to evade to pay the contribution of all the employees, but in fact the allowances were being paid only to few employees.

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Now another question would arise whether such allowances would also incur the liability of payment of the contributions or not. The allowances would fall under the exemptions carved out under Section 2B(ii) of the Act. There cannot be any doubt the allowances would not incur a liability upon an employer/ management/

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establishment to pay contribution. Contributions are liable to be paid on the basic wages. Thus each an every case has to be examined on the touch- stone/ preponderance of the evidence and not by uniform yardstick as has been done on behalf of the organization.

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It would be apt to extract findings of the Supreme Court recorded in Paragraph Nos.15, 16 & 21.

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15. "Basic wage", under the Act, has been defined as all emoluments paid in cash to an employee in accordance with the terms of his contract of employment. But it carves out certain exceptions which would not fall within the definition of “Basic wage” and which includes dearness allowance apart from other allowances mentioned therein. But this exclusion of dearness allowance finds inclusion in Section 6. The test adopted to determine if any payment was to be excluded from basic wage is that the payment under the scheme must have a direct access and linkage to the payment of such special allowance as not being common to all. The crucial test is one of universality. The employer, under the Act, has a statutory obligation to deduct the specified percentage of the contribution from the employee's salary and make matching contribution. The entire amount

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is then required to be deposited in the fund within 15 days from the date of such collection.

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16. The aforesaid provisions fell for detailed consideration by this Court in Bridge and Roofs when it was observed as follows: (AIR pp. 147677. paras 7-8)

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"7. The main question therefore that falls for decision is as to which of these two rival contentions is in consonance with Section 2(b). There is no doubt that "basic wages" as defined therein means all emoluments which are earned by an employee while on duty or on leave with wages in accordance with the terms of the contract of employment and which are paid or payable in cash. If there were no exceptions to this definition, there would have been no difficulty in holding that production bonus whatever be its nature would be included within these terms. The difficulty, however, arises because the definition also provides that certain things will not be included in the term "basic wages", and these are contained in three clauses. The first clause mentions the cash value of any food concession while the third clause mentions any presems made by the employer. The fact that the exceptions contain even presents made by the employer shows that though the definition mentions all emoluments which are earned in accordance with the terms of the contract of employment, care was taken to

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exclude presents which would ordinarily not be earned in accordance with the terms of the contract of employment. Similarly, though the definition includes "all emoluments" which are paid or payable in cash, the exception excludes the cash value of any food concession, which in any case was not payable in cash. The exceptions therefore do not seem to follow any logical pattern which would be in consonance with the main definition.

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Then we come to clause (ii). It excludes dearness allowance, house rent allowance, overtime allowance, bonus, commission or any other similar allowance payable to the employee in respect of his employment or of work done in such employment. This exception suggests that even though the main part of the definition includes all emoluments which are earned in accordance with the terms of the contract of employment, certain payments which are in fact the price of labour and earned in accordance with the terms of the contract of employment are excluded from the main part of the definition of "basic wages". It is undeniable that the exceptions contained in clause (ii) refer to payments which are earned by an employee in accordance with the terms of his contract of employment. It was admitted by the counsel on both sides before us that it was difficult to find any one basis for the exceptions contained in the

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three clauses. It is clear however from clause (ii) that from the definition of the words "basic wages" certain earnings were excluded, though they must be earned by employees in accordance with the terms of the contract of employment. Having excluded "dearness allowance" from the definition of "basic wages". Section 6 then provides for inclusion of dearness allowance for purposes of contribution. But that is clearly the result of the specific provision in Section 6 which lays down that contribution shall be 61/4 per centum of the basic wages, dearness allowance and retaining allowance (if any). We must therefore try to discover some basis for the exclusion in clause (ii) as also the inclusion of dearness allowance and retaining allowance (if any) in Section 6. It seems that the basis of inclusion in Section 6 and exclusion in clause (ii) is that whatever is payable in all concerns and is earned by all permanent employees is included for the purpose of contribution under Section 6 but whatever is not payable by all concerns or may not be earned by all employees of a concern is excluded for the purpose of contribution. Dearness allowance (for example) is payable in all concerns either as an addition to basic wages or as a part of consolidated wages where a concern does not have separate dearness allowance and basic wages. Similarly, retaining allowance is payable to all permanent employees in all seasonal

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factories like sugar factories and is therefore included in Section 6; but house-rent allowance is not paid in many concerns and sometimes in the same concern it is paid to some employees but not to others, for the theory is that houserent is included in the payment of basic wages plus dearness allowance or consolidated wages. Therefore, house-rent allowance which may not be payable to all employees of a concern and which is certainly not paid by all concerns is taken out of the definition of "basic wages" even though the basis of payment of house-rent allowance where it is paid is the contract of employment. Similarly, overtime allowance though it is generally in force in all concerns is not earned by all employees of a concern. It is also earned in accordance with the terms of the contract of employment, but because it may not be earned by all employees of a concern it is excluded from "basic wages". Similarly, commission or any other similar allowance is excluded from the definition of "basic wages" for commission and other allowances are not necessarily to be found in all concerns, nor are they necessarily earned by all employees of the same concern, though where they exist they are earned in accordance with the terms of the contract of employment. It seems therefore that the basis for the exclusion in clause (ii) of the exceptions in Section 2(b) is that all that is not earned in all concerns or by all employees of a

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concern is excluded from basic wages. To this, the exclusion of dearness allowance in clause (ii) is an exception. But that exception has been corrected by including dearness allowance in Section 6 for the purpose of contribution. Dearness allowance which is an exception in the definition of "basic wages", is included for the purpose of contribution by Section 6 and the real exceptions therefore in clause (ii) are the other exceptions besides dearness allowance, which has been included through Section 6."

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21. Applying the aforesaid tests to the facts of the present appeals, no material has been placed by the establishments to demonstrate that the allowances in question being paid to its employees were either variable or were linked to any incentive for production resulting in greater output by an employee and that the allowances in question were not paid across the board to all employees in a particular category or were being paid especially to those who avail the opportunity. In order that the amount goes beyond the basic wages, it has to be shown that the workman concerned had become eligible to get this extra amount beyond the normal work which he was otherwise required to put in. There is no data available on record to show what were the norms of work prescribed for those workmen during the relevant period. It is therefore not possible to

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ascertain whether extra amounts paid to the workmen were in fact paid for the extra work which had exceeded the normal output prescribed for the workmen. The wage structure and the components of salary have been examined on facts, both by the authority and the appellate authority under the Act, who have arrived at a factual conclusion that the allowances in question were essentially a part of the basic wage camouflaged as part of an allowance so as to avoid deduction and contribution accordingly to the provident fund account of the employees. There is no occasion for us to interfere with the concurrent conclusions of facts. The appeals by the establishments therefore merit no interference. Conversely, for the same reason the appeal preferred by the Regional Provident Fund Commissioner deserves to be allowed.”

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The findings recorded in paragraph No.21 is based upon the evidence available on the record and thus cannot be treated to be a judgment in rem as each and every case has to be examined independently, for the sake of repetition, on the basis of the evidence. Petitioner was not required to place additional material,s to this Court for the reason that the Tribunal being the

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last Court of fact and law examined the evidence threadbare and found payment of allowances only to few employees and not to all. That itself is a clean chit for accepting the argument and stand of the petitioner.

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For the reason aforementioned, I am of the view that the findings in the orders under challenge are not sustainable and liable to be set aside. Exts.P3 and P7 are set aside and Writ petition stands allowed.

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AMIT RAWAL
JUDGE

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VV

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APPENDIX OF WP(C) 4879/2022

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PETITIONER EXHIBITS

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Exhibit P1TRUE COPY OF NOTICE
NO.KR/TVM/22096/ENF/II(2)/2016-17
DATED 13/04/2016 ISSUED BY 2ND
RESPONDENT TO PETITIONER.
Exhibit P2TRUE COPY OF REPLY LETTER DATED
16/08/2016 SUBMITTED BY PETITIONER
BEFORE 2ND RESPONDENT.
Exhibit P3TRUE COPY OF ORDER
NO.KR/22096/ENF.II(2)/2016 DATED
29/12/2016 ISSUED BY 2ND RESPONDENT TO
PETITIONER
Exhibit P4TRUE COPY OF MEMORANDUM OF APPEAL
DATED 24/01/2017 FILED BY PETITIONER
BEFORE THE EMPLOYEES PROVIDENT FUND
APPELLATE TRIBUNAL, BENGALURU BENCH
WITHOUT ANNEXURES ATTACHED THEREWITH,
APPEAL NO.A/KL 09/2017.
Exhibit P5TRUE COPY OF ORDER DATED 06/02/2017
PASSED BY EMPLOYEES PROVIDENT FUND
APPELLATE TRIBUNAL, BENGALURU IN
APPEAL NO.A/KL-09/2017.
Exhibit P6TRUE COPY OF LETTER DATED 17/02/2020
SUBMITTED BY PETITIONER TO 2ND
RESPONDENT WITH 2ND RESPONDENT'S
ACKNOWLEDGMENT AND COPY OF THE DEMAND
DRAFT NO.54981 DATED 13/02/2021
ATTACHED THEREWITH.
Exhibit P7TRUE COPY OF ORDER DATED 06/04/2021 IN
APPEAL NO.221 OF 2018 PASSED BY 1ST
RESPONDENT.
Exhibit P8TRUE COPY OF INSPECTION REPORT-PART II
NO.KR/22096/PFI/EO/JS/TVM/2013 DATED
17/12/2013 ISSUED BY 2ND RESPONDENT TO
PETITIONER.

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Exhibit P9TRUE COPY OF INSPECTION REPORT-PART II
NO.KR/22096/TVM/EO/JS/2015 DATED
17/08/2015 ISSUED BY 2ND RESPONDENT TO
PETITIONER.
Exhibit P10TRUE COPY OF ORDER
NO.KR/22096/RECOVERY/RO/TVM/2021-22
DATED 7/1/2022 ISSUED BY 2ND
RESPONDENT TO PETITIONER'S BANKERS,
ICICI BANK LTD., WITH COPY TO
PETITIONER.

G4S Facility Services (India) Private Limited v. the Presiding Officer

Case brief

What is this about?

What did the court decide?

G4S Facility Services (India) Private Limited v. the Presiding Officer

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

Cases cited

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