Bocw act

Greetings, 

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A company registered under companies Act involved in power sector, providing certain benefits to its workmen like, ESI,PF, etc. in addition to of these benefits, BOCW Act prescribes to pay 1% of contract value for welfare of the workers. How much amount can an employer bear, though providing all safety, healthy and emplopyee benefits? It is becoming huge burden on employer. Please give any judgements against BOCW Act or provide certain points to fight in court of law.   

Greetings,

An employer is liable to pay labour cess and cannot be exempted from the scope of BOCW act. BOCW Act is enacted to provide for the levy and collection of a ‘cess’ on the cost of construction incurred by employers with a view to augmenting the resources of the Building and Other Construction Workers and provide them safety, health and employment benefits besides ESI, PF, etc. An employer whose company registered under companies act is liable to pay ‘cess’ at the rate of 1% not exceeding 2 % of the cost of construction to their employees who are working to do any skilled, semi-skilled, technical etc in connection with any building or other construction work.

According to Rule 3 of The Building and Other Construction Worker’s Welfare Cess Rules, 1998 which states the following:

“Levy of cess.—For the purpose of levy of cess under sub-section (1) of section 3 of the Act, cost of construction shall include all expenditure incurred by an employer in connection with the building or other construction work but shall not include—

1. cost of land;
2. any compensation paid or payable to a worker or his kin under the Workmen’s Compensation Act, 1923.”

It states that cost of construction includes “all expenditure incurred by an employer in connection with the building or other construction work”

The Chattisgarh High Court on 9 October, 2018 in Managing Director, Ultratech vs State Of Chhattisgarh held that A perusal of the aforesaid provisions show that Section 3 deals with levy and collection of cess. Cess cannot be less than 1% but cannot exceed 2%. The cess has to be calculated on the cost of construction incurred by the employer. Some of the contracts which have been entered into are combined contracts dealing both with construction and works of other nature, such as design etc. There can be no manner of doubt that cess would only be payable on the construction activity and the construction aspect of the contract. Cess would not be payable on those items which do not fall under the construction activities.

Andhra Pradesh High Court in 2008 in  Cormandel Prestcrete Private Limited v. State of Andhra Pradesh and Ors. clearly held “that cess is to be collected only on the ‘cost of construction’ and not on the entire value of work, thereby implying that ancillary activities such as supply, though contributing to the entire value of work, would not be liable for cess deduction.”

Hope this helps.

Thank u sir