The Supreme Court in the case of Uttar Pradesh Power Transmission Corporation Limited v. CG Power and Industrial Solutions Limited, [SLP(C) No. 8630 of 2020, decided on May 12, 2021], adjudicated upon the scope of applicability of certain provisions of the Building and Other Construction Workers’ Welfare Cess Act, 1996 (‘BOCWW Act’) and of the Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996 (‘BOCW Act’). 

Brief background: 

The matter stemmed out of a framework agreement (‘said Agreement’) entered into between the parties for construction of 765/ 400 KV substations at Unnao, Uttar Pradesh. The work was awarded through 4 (four) separate contracts, the scope of work for the same were as follows:

1. FIRST CONTRACT           : “Supply and Delivery of Equipment & Material”
2. SECOND CONTRACT      : “Handling, Erection, Testing and Commissioning Works”
3. THIRD CONTACT             : “Civil Works”
4. FOURTH CONTRACT      : “Three years O & M” 

It would be pertinent to note that sub-clause 5 of the said Agreement, under the head “Nature of Contract”, it was clearly stated that the first and second contract shall cover all works other than civil works required to be completed. 

The respondent no. 1 had duly performed the First Contract and thereafter there was an audit inspection for the period of April 2012 to April 2016. In the audit report it was noted that the petitioner no. 1 had lapsed in deducting cess under the BOCWW Act and the BOCW Act. Subsequently, the petitioner no. 1 by a letter dated December 29, 2018 directed the executive engineer of the petitioner no. 1 to deduct the cess from the pending invoices of the respondent no. 1 in relation to the First Contract.  

Against this backdrop the petitioners had filed a writ petition before the Allahabad High Court challenging the letter dated December 29, 2018. The Allahabad High Court held that no cess is payable under the BOCWW Act or the BOCW Act and accepted the submission of the respondent no.1 that in the absence of levy and assessment under the acts and rules framed thereunder and also in the absence of any order for levy and assessment under the BOCWW Act and the BOCW Act no recovery could be made based on an audit inspection. 

Judgment and Analysis: 

A special leave petition was filed against the judgment of the Allahabad High Court. The Supreme Court upheld the ruling of the High Court on the following grounds: 

1. There were no provisions in any of the contracts which allowed the petitioner no.1 to deduct any amount from the bills raised by the respondent no. 1 towards any taxes, cess or any other statutory dues of the contractor.
2. Under Section 2(g) of the BOCW Act the term ‘contractor’ means a person who undertakes to produce a given result for any establishment, other than a mere supply of goods or articles of manufacture, by the employment of building workers or who supplies building workers for any work of the establishment and includes a sub-contractor. The Respondent No.1 is apparently not a contractor, within the meaning of Section 2(1)(g) of the BOCW Act in respect of the first, second and fourth contracts.
3. Section 2(1)(i) of the BOCW Act defines ‘employer’ to include the contractor in relation to a building and other construction work carried on by or through a contractor or by employment of building workers supplied by a contractor. The respondent No.1 neither falls within the definition of ‘contractor’ in Section 2(1)(g) nor 2(1)(i)(iii) of the BOCW Act.
4. The condition precedent for imposition of cess under the BOCWW 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, equipment 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 BOCWW Act.
5. A contractor who enters into a pure Supply Contract is statutorily exempted from levy under the BOCW Act.
6. Besides the aforementioned, the court also observed that the existence of an arbitration clause does not debar the court from entertaining a writ petition and that monetary relief can also be granted in a writ petition.

Please find a copy of the judgment here.

This update has been contributed by Pooja Chakrabarti (Partner) and Prithwish Roy Chowdhury (Associate).

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