12 May 2121
Case : Uttar Pradesh Power Transmission Corporation Ltd. And Anr. v. CG Power And Industrial Solutions Limited And Anr. Special Leave Petition (C) No. 8630 of 2020
Court : Supreme Court of India
Bench : Justice Uday Umesh Lalit and Justice Indira Banerjee
Decided on : 12 May 2121
Article 136 and Article 226 of the Constitution Of India
Sections 3 sub-section (1) and (2) of the Building and Other Construction Workers’ Welfare Cess Act, 1996.
Rules 3 and Rule 4 (1), (2) (3) and (4) of the Building and Other Construction Workers Welfare Cess Rules, 1998.
Section 2 (1)(d), (g) and (i) of the Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996
Brief Facts and Procedural History
1. Respondent No.1, entered into a Framework Agreement with UPPTCL for the construction of Power Substations, at Unnao, Uttar Pradesh. Four separate contracts were executed by and between UPPTCL and Respondent No.1. These covered the (i) supply and delivery scope (ii) handling, election, testing and commissioning scope (iii) civil works scope and (iv) operation and maintenance scope. Respondent No.1 duly performed the first contract under the framework agreement and the bills raised was duly cleared.
2. The audit inspection was held. In the Audit Report, the Accountant General pointed out the lapse on the part of UPPTCL, in not deducting labour cess from the bills of the contractor, that is Respondent No.1.
3. By a letter the Petitioner, informed Respondent No.1 of the objection raised in the Audit Inspection Report and also informed that simple interest was chargeable on Labour Cess at the rate of 2% per month.
4. The Respondent objected to the imposition of Labour Cess and also made representations to the UPPTCL for setting aside the demand for cess.
5. UPPTCL did not release the Performance Bank Guarantee furnished by Respondent No.1, to secure recovery of an amount towards cess. Later, Respondent No.1 extended the validity of the bank guarantee.
6. By a letter, the Superintendent Engineer of the UPPTCL requested the Executive Engineer, Unnao to recover labour cess for the supply part of the composite contract from the pending bills of the Respondent No.1 and, in case any amount still remained outstanding, to deduct such amount by encashment of the Performance Bank Guarantee to secure the payment of labour cess.
7. Aggrieved by the Petitioner, the Respondent filed a Writ Petition before the Lucknow Bench of the Allahabad High Court. The Honorable High Court set aside the letters sent by the Petitioner to the Respondent and ordered that there could be no deduction of cess without there being an order for levy and assessment under the Building and Other Construction Workers' Welfare Cess Act 1996.
The Issue of the Case
Whether the cess under the Building and Other Construction Workers’ Welfare Cess Act 1996 is payable on a Supply Contract or not?
The Observations of the Court
1. The Honourable Sureme Court found that the Respondent No.1 neither falls within the definition of ‘contractor’ in Section 2(1)(g) nor ‘employer’ in 2(1)(i)(iii) of the Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996. Apparently, the Respondent No.1 is not liable to cess in respect of the First, Second and Fourth contracts.
2. Relying upon the statutory schemes discussed in Dewan Chand Builders and Contractors vs. Union of India reported in (2012) 1 SCC 101, and Lanco Anpara Power Limited v. State of Uttar Pradesh and Ors. Reported in (2016) 10 SCC 329, the court concluded that ‘the clear statutory scheme of the Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996 excludes a supply contract from within its ambit'.
3. The Honourable Supreme Court opined, the Cess could only be imposed upon the construction, repair, demolition, or maintenance or any other work of construction. Mere supply, installation and/or erection activities which did not involve construction work were not amenable to Cess under the Building and Other Construction Workers’ Welfare Cess Act 1996.
4. The Honourable Supreme Court observed that UPPTCL demanded and partly realized cess on the supply Contract, solely on the basis of report of the Comptroller and Auditor General (CAG). Therefore, in the absence of any adjudication by the concerned department, it was not permissible for UPPTCL to deduct the Cess. UPPTCL has no power and authority and or jurisdiction to realize labour cess under the Building and Other Construction Workers’ Welfare Cess Act 1996 in respect of the first contract by withholding dues in respect of other contracts and/or invoking a performance guarantee.
5. The Honourable Supreme Court also clarified that having an arbitration clause in an agreement did not preclude a concerned party from pursuing its writ remedy under Article 226 of the Constitution of India.
The Decision Held by the Court
1. The Honorable Court dismissed the Special Leave Petition and held that the impugned communications have rightly been set aside therefore, the judgment and order of the High Court impugned does not call for inference under Article 136 of the Constitution of India.