UPPTCL Has No Power to Realize Labour Cess Under Cess Act by Invoking a Performance Guarantee: Supreme Court

The Petitioner, UPPTCL, filed the present Special Leave Petition, under Article 136 of the Constitution of India, against a final Judgment and Orderpassed by the High Court of Judicature at Allahabad (Lucknow Bench). The Court, however, said that the impugned judgment and Order do not call for any interference and hence, dismissed the Special Leave Petition.

Background

The Petitioner, UPPTCL, filed the present Special Leave Petition, under Article 136 of the Constitution of India, against a final Judgment and Orderpassed by the High Court of Judicature at Allahabad (Lucknow Bench). Therein, the Allahabad High Court allowed the Writ Petition filed by Respondent No. 1 and set aside the letters issued by the Executive Engineer, Unnao, UPPTCL, and directed Respondent No. 1 to remit Labour Cess amounting to Rs.2,60,68,814/-, computed at 1% of the contract value, under Sections 3 sub-Section (1) and (2) of the Building and Other Construction Workers’ Welfare Cess Act, 1996, read with Rules 3 and Rule 4 (1), (2) (3) and (4) of the Building and Other Construction Workers Welfare Cess Rules, 1998, and also Section 2 (1)(d), (g) and (i) of the Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996.

In this case, Respondent No. 1, M/s CG Power and Industrial Solutions Limited, entered into a Framework Agreement with UPPTCL to construct 765/400 KV Substations at Unnao, Uttar Pradesh. In terms of the said Framework Agreement, the work was split and covered by four separate contracts. The cess under the Cess Act was payable in respect of the Third Contract, which covered all civil works.

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An audit inspection of the 765 KV Transmission Division, Unnao, was conducted by the Audit Officer under the Senior Accountant General. In the Audit Report, the Accountant General pointed out the lapse on the part of UPPTCL in not deducting labour cess from the contractor’s bills, i.e., Respondent No.1, in respect of the First Contract. The Executive Engineer of the Petitioner, using a letter, informed Respondent No. 1 that 1% Labour Cess was to be collected from the contractor on the project cost, including supply of equipment and materials as erection work. Respondent No. 1 was also informed that simple interest was chargeable on Labour Cess at the rate of 2% per month. Through a letter, the Respondent objected to the imposition of Labour Cess computed at 1% of the total cost of construction, stating that the company was not covered under the definition of contractor for the first contract under the Act. The Respondents also made representations to the UPPTCL for setting aside the demand for cess alleged to be outstanding, on the ground that the first contract was exempted from cess under the BOCW Act and the Cess Act 1996.

The issue of cess and bank guarantees continued between the Petitioner and the Respondent. Consequently, the Respondent filed a Writ Petition before the Lucknow Bench of the Allahabad High Court, challenging the communications related to the issue. The question of law as to whether cess would be payable in respect of the supply of equipment by Respondent No. 1 to UPPTCL was kept open by the High Court. UPPTCL filed a Counter Statement to the writ petition. The Respondent filed a Rejoinder thereto contending that the provisions of the BOCW Act did not apply to the Supply Contract and levy and deduction of labour cess in respect of the Supply Contract were not permissible in law. By the impugned order, the High Court set aside the letters sent by the Petitioner to the Respondent demanding outstanding labour cess amounting to Rs. 2,60,68,814/- computed at the rate of 1% of the contract value.

Arguments Before the Court

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Mr Ramesh Singh, appearing on behalf of Respondent No. 1, submitted that the four contracts had been treated as an express contract solely for responsibility for timely execution. For all other intents and purposes, including levy of any tax or fees, the contract for supply was understood by the parties as a separate and distinct contract. He further pointed out that as per the payment terms under Clause 9.1 of the Special Conditions of Contract, the Schedule of Payments was separate for the supply and delivery of equipment and materials, totalling Rs. 275,09,33,042.00 as against the total value of the contract, which is Rs.302,06,08,217.00. Furthermore, he argued that the terms and clauses of the contract made it amply clear that the first contract was to supply and deliver equipment and materials. It was a pure supply contract, separate and distinct from a civil works contract.

Court’s Observations

The Court perused the BOCW Act thoroughly and observed that the said Act had been enacted for the welfare of only building and other construction workers and to make adequate provisions for their safety, health, and financial security.

The Court observed that there was no provision in the first contract, second contract, third contract, or fourth contract or in the Special Conditions of Contract or the General Conditions for Supply of Plant and the Execution of work, which enabled UPPTCL to withhold any amount from the bills raised by the Respondent No. 1 on UPPTCL towards any taxes, cess or any other statutory dues of the contractor.

The Court further perused Section 2(g) of the BOCW Act and found that Respondent No. 1 was not a contractor, within the meaning of Section 2(1)(g) of the BOCW Act in respect of the first, second, and fourth contracts. Further, the Court found that Respondent No. 1 was not an employer within the meaning of Section 2(1)(i) of the BOCW Act. And hence, found Respondent No. 1 not liable to cess in respect of the First, Second, and Fourth contracts.

The Court further said that in the absence of any adjudication, it was impermissible for UPPTCL to issue the impugned communication to realize cess solely based on the report of the CAG. The Court further referred to several judgments of the Hon’ble Supreme Court of India and observed that it was well settled by a plethora of decisions of this Court that relief under Article 226 of the Constitution of India may be granted in a case arising out of contract. However, the writ jurisdiction under Article 226, being discretionary, the High Court usually refrain from entertaining a writ petition which involves adjudication of disputed questions that may require analysis of the evidence of witnesses. The Court observed that UPPTCL has no power and authority, and jurisdiction to realize labour cess under the Cess Act in respect of the first contract by withholding dues in respect of other agreements and/or invoking a performance guarantee. The Court found no legal infirmity in the High Court, finding that UPPTCL acted more than power by its acts impugned when there was admittedly no assessment or levy under the Cess Act. The Court said that the impugned communications have rightly been set aside.

Court’s Decision

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After making the observations above, the Court held that the impugned judgment and Orderof the High Court do not call for interference under Article 136 of the Constitution of India and hence, dismissed the Special Leave Petition.

Click here to read the judgement.


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