Allowed

M/S.G.C.Kanungo Constructions Pvt. Ltd. v. State of Odisha

Orissa HC3 Apr 2023WP(C)/21096/2018

Case brief

AI extract

What is this about?

The High Court of Orissa allowed the writ petition challenging the refusal to refund labour cess deducted from bills. The Court held that since the tender and estimate predated the statutory notification, the deduction was illegal, and the amount must be reimbursed with interest.

What did the court decide?

Directed respondents to refund Rs.8,95,920/- with interest at 5% per annum within 60 days.

M/S.G.C.Kanungo Constructions Pvt. Ltd. Vs… — Contract and Commercial Disputes | Orissa HC (2023)

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IN THE HIGH COURT OF ORISSA AT CUTTACK W.P.(C) No. 21096 of 2018

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An application under Articles 226 and 227 of the Constitution of India

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--------------
M/s. G.C. Kanungo Construction
Pvt. Ltd. ..…. Petitioner
-versus-
State of Odisha and others …… Opposite Parties
-------------------------------------------------------------------------
For Petitioner :Mr. Milan Kanungo, Sr. Advocate
with Mr. S.R. Mohanty, Advocate
For Opposite Parties : Mr. D. Nayak,
Addl. Government Advocate
-------------------------------------------------------------------------
CORAM:
HONOURABLE MR. JUSTICE S. TALAPATRA
HONOURABLE MISS JUSTICE SAVITRI RATHO
JUDGMENT
3 rd April, 2023

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S. Talapatra, J By means of this writ petition, the Petitioner, M/s. G.C. Kanungo Constructions Pvt. Ltd. has challenged the decision contained in the letter dated 09.10.2018, Annexure13 to the writ petition by which it has been communicated that the Labour Cess as realized from the running bills of the

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Petitioner during execution of the work titled as “Improvement to Sunakhala and Ayutpur Road from 0/0 km to 11/000 km in Khurda district under NABARD Assisted RIDF-XII cannot be reimbursed.

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2. It has been stated by the said communication dated 09.10.2018 that on close scrutiny, it has been found that the reimbursement of cess with effect from the date of notification against the work under execution cannot, due to absence of any clause for realization of cess in pre-existing contract, be held illegal and improper. The statutory provision for realization of cess has been enacted with object of protecting the workers’ interest. Hence, the amount collected from the running bills of the Petitioner cannot, under any circumstances, be reimbursed even if the work was executed after the relevant statute came into force.

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3 . According to Mr. Milan Kanungo, learned Senior Counsel appearing for the Petitioner, such denial is grossly arbitrary in as much as the deduction of the labour cess was without any authority of law. The Petitioner, which is

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Page 2 of 18

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incorporated under the Companies Act, has claimed that they are entitled to reimbursement to the extent of Rs.8,95,920/with interest @ 12 % per annum from the date of deduction till the date of actual payment.

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4 . There is no dispute that by a transparent method, the Petitioner was engaged to execute the work as mentioned above and for that purpose, on 31.08.2009, the agreement No.4P1/2009-10, Annexure-2 to the writ petition was executed. It is also an admitted position that by the Notification dated 18.12.2008, Annexure-3 to the writ petition, the Building and Other Construction Workers Welfare Cess Act, 1996 was given effect to. It has been clearly provided by the said Act as follows:

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“7.(a) All Government Departments, Public Sector Under takings and other Govrnment Departmental agencies/bodies carrying out any buildings or other construction works which are covered under section 2(1)(d) of the Building and Other Construction Workers (RE & CS) Act, 1996 shall pay 1% of the amount of the cost approved as per the tender notification. This amount will be deducted from the bill at the time of making payment to the contractors and such amount shall be remitted by way of account payee cheque in favour of the Orissa Building and Other Construction Workers Welfare Board within 30 days of making payment along with a forwarding letter addressed to the Secretary-cum-Chief Executive Officer, the Orissa Building and Other Construction Workers

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Page 3 of 18

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Welfare Board, Office of the Labour Commissioner, Orissa Bhubaneswar.”

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According to the Petitioner, the deduction of labour

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cess to the extent of Rs.8,95,920/- from their running, final and the escalation bill is not authorized by law. There is no dispute that the tender for the said work was floated on 15.10.2008 and the last date of submission of the bid was 07.11.2008, whereas the resolution for deduction of labour

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cess was notified on 18.12.2008. Hence, the Petitioner has contended that the labour cess was not included in the estimate

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of the tender.

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On 29.05.2014, the Petitioner made a representation,

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Annexure-7 to the writ petition, to the Opposite Party No.4 stating that when the tender was floated, there was no legal

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regime for deducting labour cess by the Government. As such,

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the labour cess was not the component of the estimate of the

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said work. Again, on 10.12.2015, the Petitioner represented to

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the authority vide Annexure-8 to the writ petition for refund of

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the deducted amount at an early date. But there yeilded no

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Page 4 of 18

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positive result. The Petitioner had represented to the Superintending Engineer (R & B), Khorda, the Opposite Party No.3 on 27.08.2016 vide Annexure-10 to the writ petition. A copy of the said representation with all records was sent to the Chief Engineer, Odisha, the Opposite Party No.2. In those representations, the Petitioner had raised the similar plea that since the tender was floated before the date of publication of the said Notification relating to deduction of the labour cess, deduction of the cess cannot be treated as legal. In terms of the order of this court dated 06.03.2018 passed in the writ petition being W.P.(C) No.16998 of 2017, the Petitioner filed a detailed representation (Annexure-12 to the writ petition) on 27.04.2018 but that was also rejected by the Opposite Party No.2 and communicated to the Petitioner by the letter dated 09.10.2018, Annexure-13 to the writ petition. The said representation was rejected on observing that the Petitioner cannot get the reimbursement of the deducted labour cess at 1

% from their bills.

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7. In Paragraph-19 of the writ petition, the Petitioner has

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asserted as follows:

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“19. That the present petitioner has been running from post to pillar to release the deducted labour cess i.e. Rs.8,95,920/-, but all his efforts have become futile and since the Opp. Party No.1 has rejected his admitted dues by passing an illegal and non-speaking order, it has resulted in mental and financial agony to the petitioner.”

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Mr. D. Nayak, learned Additional Government Advocate has contended that prior to execution of the agreement, the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 was enforced. In terms of Section 3(1) of the Building and Other Construction Workers Welfare Cess Act, 1996, the State Government had instructed the authorities for collection of cess @ 1% of the cost of the estimated cost of the construction vide the Notification dated 18.12.2008. Agreement was executed on 31.08.2009 after the Government Notification dated 18.12.2008 was issued. Labour cess to the extent of Rs.8,95,920/- was deducted from the running and

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final bills of the Petitioner. The term of the contract was determined at 18 months. After completion of the tender work,

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the final bill was paid to the Petitioner/Contractor. It is true that Petitioner did not raise any protest or grievance at the time of payment of the final bill. During execution of the work, the Petitioner did not raise any demand for refund of labour cess. As the final bill amount had been received without any protest, the Petitioner/Contractor is estopped from raising the claim for refund of labour cess amount. It cannot

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be stated that there was no law authorising the Opposite Parties to deduct the labour cess.

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It is relevant to mention here that the Building and Other Construction Workers Act, 1996 is a social welfare legislation. The said statute stood by the judicial scrutiny. It

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has been asserted by the Opposite Parties in their counter affidavit that the Government of Odisha by their letter No.FACodes-3/10-4073 dated 31.03.2010 had communicated their decision to include 1 % cess in the estimate for collecting the same for benefit of the workers under the said Act. It has been

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also averred in Paragraph-9 of the counter affidavit as follows:

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“….It is pertinent to mention here that Works Department letter dtd.31.03.2010 is silent with regard to effective date

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for collection of labour cess. Copy of the letter dtd.31.03.2010 is annexed herewith as Annexure-A/4.”

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Government of Odisha has included 1% cess in the estimates for collection of the sum for transferring the same to the “Orissa Building Construction Workers Welfare Board”. The Board will utilize the money for benefit of the workers engaged in construction of Road and Building under the control of the Department. The said communication dated 31.03.2010, Annexure-A/4 to the writ petition, is relevant as this is the first communication in which it has been directed to include 1% cess in the estimates. No communication of such nature was earlier available even to the department for inclusion of the cess in the estimate. Notwithstanding that, the Opposite Parties have taken the stand as reflected in Paragraph-9, as reproduced above.

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Mr. Nayak, learned Additional Government Advocate

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has contended that the deduction has been made in terms of the Labour and Employment Department Resolution No.12653-LL-1 (iii)-25/07/LE dated 15.12.2008. As the

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agreement was executed on 31.08.2009, the

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petitioner/contractor was under obligation to pay the statutory labour cess in terms of Clause-38 of DTCN read with the

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Labour and Employment Department Resolution dtd.15.12.2008. According to him, the estimate is immaterial for deduction of the labour cess, in as much as the prevalent law will apply to the agreement. Hence, the Petitioner cannot

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escape the labour cess as per Clause-38 of DTCN.

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In response to the counter affidavit filed by the

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Opposite Parties, the Petitioner filed the rejoinder and one clarificatory additional affidavit. In the rejoinder, reference has been made to Annexures-9, 10 and 11 of the writ petition, which are respectively the communication of the Executive Engineer dated 23.06.2016 addressed to the Superintending Engineer, the communication of the Superintending Engineer addressed to the Chief Engineer (World Bank Project) and the communication of the Engineer-in-Chief (Civil) addressed to the Engineer-in-Chief-cum-Secretary to the Government,

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Works Department. In the communication dated 23.06.2016,

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the Executive Engineer has stated as under:

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“6. There is no provision neither for recovery of labour cess from the contractor nor for refund of recovered amount to the contractor in the agreement. In fact consequent upon enforcement of labour cess recovery from existing contracts irrespective of contractual provision, labour cess was deducted. Now the contractor takes stand that there was no such provision in the DTCN nor agreement for which the unilateral deducted amount should be refunded. Accordingly refund of labour cess was proposed against the contract as well as to the agency.”

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[Emphasis added]

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The said observation was communicated to the Chief Engineer (World Bank Project) by the Superintending Engineer on 27.08.2016. It has been observed in the said communication dated 27.08.2016, Annexure-10 to the writ

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petition that the notification for deduction was made on 15.05.2008. But the estimate and the tender process were made or floated prior to the said notification. There is no reference of the labour cess in the analysis of the sanctioned estimate. The Executive Engineer had reported that due to this notification, the labour cess had been deducted from all existing contracts, even if, made prior to the said notification

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Page 10 of 18

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or later to the notification. The Engineer-in-Chief (Civil) in his communication dated 27.10.2016 addressed to the Engineerin-Chief-cum-Secretary to the Government Works

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Department, Odisha, Bhubaneswar, has stated as follows:

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“…the proposal of the Superintending Engineer, Khurda (R & B) Circle, Khurda for reimbursement of Rs.8,95,920.00, the amount recovered towards Labour CESS is forwarded herewith for approval of Government. The statement of deduction of Labour CESS from the bills of contractor along with voucher No. & Date of deduction which has been recommended by Sr.DAO & Executive Engineer, Khurda (R & B) Division, Khurda along with other documents are enclosed herewith for reference of Government. Hence, the orders of Government may be communicated to this office for taking further action in this matter as the provision in shape of supplementary agreement such as reimbursement of Labour CESS deducted from the contractor bill where there was no provision included in the estimate shall be made by the Department which was not in the original contract requires to be supplemented to the Agreement for reimbursement of the Labour CESS already recovered as per Para 3.5.22 of OPWD Code Vol-1.”

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According to the Petitioner, the impugned decision

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has been taken by the Government thereafter and was communicated to them by the letter dated 09.10.2018, Annexure-13 to the writ petition.

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Mr. Kanungo, learned Senior Counsel has submitted that it is apparent in the face of the records that when the

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contractor [the Petitioner] quoted his rate, at that time the notification for deduction of 1% cess on the estimate of the work was not in force and the agreement was also prepared on the basis of the said estimate. According to Mr. Kanungo, learned Senior Counsel, the concerned Executive Engineer, the Superintending Engineer and the Chief Engineer gave the

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opinion favouring reimbursement of the said labour cess as deducted arbitrarily.

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By filing the additional affidavit, the Petitioner has brought one incident to the knowledge of this court. One contractor, namely, Eastern India Construction Pvt. Ltd. when approached this court by filing the writ petition being W.P.(C) No.14667/2018 on identical issue of reimbursement of the labour cess, the said writ petition was disposed of, by the order dated 08.02.2019, Annexure-A to the additional affidavit, whereby it was directed that the Executive Engineer shall consider and dispose of the Petitioner’s representation dated 03.07.2018 as expeditiously as possible, preferably within a period of six weeks from the date of production of a

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certified copy of the said order. Later on, the claimed amount to the extent of Rs.49,67,655/- was released in favour of the said Petitioner, as would be evident from the communication dated 09.06.2020, Annexure-B to this petition. The background of release of the said amount can be gathered further from the communication dated 07.12.2019 (part of Annexure-B). Having referred to that incidence of refund, Mr.

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Kanungo, learned Senior Counsel has submitted that the Petitioner is entitled to the similar consideration.

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Having appreciated the submission of the learned

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counsel for the parties and scrutinized the records as produced along with the writ petition and the additional affidavit by the Petitioner, the pertinent question that arises for our consideration is that whether the Petitioner was under obligation to pay the labour cess under the Building and Other Construction Workers Welfare Cess Act, 1996, which was brought in force by the notification dated 18.12.2008 published in the Orissa Gazette No.2306.

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There is no dispute that neither in the tender floated by the Opposite Party No.4 nor in the estimate, there was any reference of deduction of the labour cess at 1% of the estimate was made. The reason is obvious as the notification, enforcing the said Act, was published on 18.12.2008 vide Annexure-3 to the writ petition. The said notification has laid down the object

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and the purport of the said Act having referred to Section 3(1) of the Building and Other Construction Workers Welfare Cess Act, 1996. The said notification catalogues the establishments which are exigible to labour cess, in Para-5 of the said Notification/Resolution dated 15.12.2008, published in the official gazette on 18.12.2008. The various other provisions as incorporated in the said resolution are not very material for the present purpose. Since the resolution was published in the official gazette on 18.12.2008, Anneuxre-3 to the writ petition, it has to be deemed that even if, there was no express provision in the said Resolution/Notification that it has come into force w.e.f. 18.12.2008. From the communication dated

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23.06.2016, Annexure-9 to the writ petition, the

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communication dated 27.08.2016, Annexure-10 to the writ petition and the communication dated 27.10.2016, Annexure11 to the writ petition, it appears that the estimate and the tender process were finalized prior to the notification. But the agreement, pursuant to the said tender process, was executed after the said notification was issued.

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Whether in such circumstances, the writ petitioner was liable to pay labour cess in terms of Section 3(1) of the Building and Other Construction Workers Welfare Case Act, 1996. 16. We would like to make reference to the background of issuance of the circulation/communication dated 31.03.2010, Annexure-4 to the writ petition. The State Government was pleased to include 1% cess in the estimates for deducting the same from the bills of the contractor at the time of payment. The said communication dated 31.03.2010 was circulated by the same authority whose decision is reflected in the communication dated 09.10.2018, Annexure13 to the writ petition and which is under challenge in this writ

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petition. Unless in the estimate, there is a mention of the statutory deposit or it is expressly mentioned that the liability under any statute has to be borne by the contractor, the contractor would definitely quote his rate taking into consideration of such statutory deposit or deduction. Even in the agreement, there is no clause for deduction of the labour

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cess or for reimbursement. It is undisputed that the agreement

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had been drawn on the basis of the tender notice [See the communications in Annexures-9, 10 and 11] where there is no reference to the statutory liability of payment of the labour cess by means of deduction.

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In our considered view, the contractor [the Petitioner] cannot be expected to contemplate that such labour cess would

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be imposed. It is the admitted position that before the communication dated 31.03.2010, Annexure-4 to the writ

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petition, no change was brought in the estimates by incorporating or including 1% cess for depositing the same to the Orissa Building and Construction Workers Welfare Board. That apart, the department has, in the similar circumstances,

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refunded the entire sum of the labour cess as deducted from the bills under the similar circumstances, as is evident from the communication dated 09.06.2020, Annexure-B to the additional affidavit. As the Petitioner was not under any obligation to deposit any labour cess on the day when he had submitted his bid and the tender was finalized on acting on the

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said bid, we would hold that, the framing of agreement is unassailable in as much as the agreement has been formed on the terms and conditions of the tender as floated by the Opposite Party No.4. Moreover, when 1% cess was not included in the estimate, the Petitioner was not supposed to pay any cess, not even from the date when the resolution of Labour and Employment Department dated 15.12.2008 was published in the Orissa Gazette on 18.12.2008. The agreement

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is mere formalization of the tender conditions and the bid. Hence, the deduction of the labour cess to the extent of Rs.8,95,920/- is grossly illegal. Consequently, the Opposite Parties are liable to reimburse the deducted sum on account of

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the labour cess. Hence, we direct the Opposite Parties,

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particularly, the Opposite Party No.4 to refund the said amount of Rs.8,95,920/- (Rupees eighty lakhs ninety five thousand nine hundred twenty) with interest @ 5% per annum

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from the date of deduction till the actual date of payment within a period of 60 (sixty) days from the date of receipt of a copy of this order from the Petitioner.

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In the above term, this writ petition is allowed and
disposed of.
19. There shall no order as to costs.
………………………….
(S. Talapatra, J)
[
Savitri Ratho, J. I agree .
………………………….
(Savitri Ratho, J)

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Orissa High Court, Cuttack. The 3^rd day of April, 2023. L. Murmu, Senior Stenographer.

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M/S.G.C.Kanungo Constructions Pvt. Ltd. v. State of Odisha

Case brief

What is this about?

What did the court decide?

M/S.G.C.Kanungo Constructions Pvt. Ltd. v. State of Odisha

Case brief

What is this about?

What did the court decide?

What the court decided

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