Kindly clarify whether ESI is applicable for Job work done by outside parties. The material is sent thro proper outward reciept and the finished material is received only on receipt of delivery challan. ESI inspectors are insisting that the labour charges done by non coded establishment are coverable irrespective of whether the work is done outside the premises and by different parties. I heard that recently a judgement has come in favour of the principal employer even then they r insisting to pay.
The principal employer is not laible to pay ESI on outside jobs executed through contract labour. This clarification has come from the highest court of the land, the Hon'ble Supreme Court.
In the case of ESIC Bangalore V/s JMD Fashions (No. MFA 1089/2001), the Karnataka High Court held that outside establishments are not immediate employers under Section 2(13) of the ESI Act. The ESIC decided to go on appeal against this verdict, before the Supreme Court. The SC in its judgment dated 12.03.2007 dismissed the petition of the ESIC and upheld the decision of the HC.
Recently the MP High Court had also given a similar judgment, stating that in case of job works done by contract labour, there is no element of supervision by the principal employer, and therefore the principal employer will not be responsible for payment of ESI contributions in respect of such contract labour.
Earlier, the ESI authorities had been demanding and in many cases, even recovered the ESI contributions from the employers for outside jobs done by contracted vendors.
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