We are a Project Mangement Consultancy firm.We have a completed a project for MNC.Then (2007)no Labour cess was paid to contractors specifically.However other taxes like Vat and Service tax paid seperately.No mention of Labour cess was made.The work has been complete and the contractors are gone.Now the Govt is asking the MNC to pay the Labour cess of 1 %.
Is it now obligatory on part of MNC to pay this tax,provision for which was not made in the Project cost previously and the project account is internally closed now.
Can this be passed on legally to be complied by the then contractors? Or is it mandatory for MNC to pay the labour cess now.
When did this come in to existence and still there is a very large ignorance about this act.
Kindly guide me in the matter.
We had executed this project in Karnataka and We are executing a similar project in Andhra Pradesh.In Andhra Pradesh project also we have not made the necessary provisions in contract agreement.Should we deduct the 1% cess from AP contractors or should we advise the Client to bear the cost?
Thanks for the response in advance.
In AP, cess is being collected w.e.f. 26.6.2007. In the case the work is of govt/PSUs etc., cess is to be deducted at source by such govt deptt/PSUs etc. In case of pvt work, it is collected at the time of approval of building plans. It is the duty cast on the govt/PSUs etc. to deduct cess at source and forward the same to the State Building and Other Construction Workers Board. Similarly, the authority who approves the building plans, has to get the cess before approval of building plans and send the same to the Board. Cess has to be paid whether there is or is not a clause in the agreement with the contractor. For more queries on the subject you may write a mail to me.
According to the Building and Other Construction Workers Act 1996 (BOCW), one per cent of the total amount of every construction project worth Rs 10 lakh or more, private or public, must be submitted to the state labour ministry under the head ‘welfare cess’. In Maharashtra, the project cost cap was lowered to Rs 5 lakh and the rule was brought into effect in August 2011.
Once we have determined that he is an employer, let us come to the provision of the BOCW Welfare Cess Act, 1996. Here, kindly read section 3(1) of this Act saying: "There Shall be levied and collected a cess for the purposes of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996, at such rate not exceeding two percent, but not less than one per cent, of the cost of construction incurred by an employer, as the Central Government may, by notification in the Official Gazette, from time to time specify." We already know that the Central Govt has specified this cess @ 1% on the cost of construction vide notification no. SO 2899 dt. 26.09.96. Therefore, now we know that the 'employer' is required to pay cess on the cost of construction @ 1% of the cost of construction.
Labour welfare cess and its implications for the construction industry
By Anup Koushik Karavadi
The construction industry in India is witnessing a boom fuelled by growing demands for infrastructure, commercial space and residential accommodation for the aspirational middle class. The industry is intricately tied to economic growth and creation of jobs, which in turn results in increasing consumer spending and growth, so the cycle is complete. While it is acknowledged that the industry is a labor intensive one, the persons, including a large number of women employed in the industry are unskilled, temporary and therefore unorganized and tend to work under inhuman and pitiful conditions.
The plight of the construction labourer seeks to be at least legally addressed in certain legislations. The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (BOCW Act) stipulates the welfare measures that have to be undertaken by the employers for its workers in the construction and building industry. Further, The Building and Other Construction Workers Welfare Cess Act, 1996, (Cess Act) has been enacted for levy and collection of cess on the ‘cost of construction’ incurred, from the relevant ‘employer’ with a view to augment the resources for the Building and Other Construction Workers’ Welfare Boards constituted under the BOCW Act.
Both the Acts have imposed the obligation of implementation on the respective state governments and hence, though the Acts have been in force since 1996-97, the implementation of the Acts has been erratic warranting directions from the Supreme Court of India in the National Campaign Committee for Central Legislation on Construction Labour v.Union of India [2012 (2) SLJ471 (SC)] to the governments of various states and union territories to implement the Acts and constitute the Welfare Boards and collect the Cess as contemplated under the said Acts. Thus it is relevant for the developers, employers’ and the contractors who are in the business of construction to be aware of the implications of the said Acts. This article proposes to highlight two of the many implications which may result due to the implementation of the said Acts.
Acts and their implications
The said Acts apply to every ‘establishment’ which employs ten or more ‘building workers’ in any ‘building or other construction work’ anytime during the preceding twelve months. The BOCW Act requires every employer in relation to an establishment to which the BOCW Act applies to make an application to the registering officer for registration of establishment within sixty days from the date of commencement of the construction work. Further, the Cess Act mandates every ‘employer’ in relation to an establishment who carries on building and construction work to pay a cess of 1% (see end note 1) of the ‘cost of construction’.
Registration of the establishment under the BOCW Act
The term ‘establishment’ includes an establishment belonging to the contractor and also the establishment where building and other construction work have commenced or proposed to commence. It is relevant to understand that the term 'building or other construction works' has a wide meaning and includes alteration, repairs, maintenance or demolition, of or, in relation to, any public works, infrastructure projects or buildings and residences (Not included when the construction cost of residences does not exceed INR 1,000,000). From the provisions of the BOCW Act it could be inferred that registration under the Act is establishment specific and not employer specific. It is a moot point as to whether the employer has to register the site where the building and other construction work have commenced (or proposed to be commenced) or the establishment from where the employer carries out its business. However, as Section 46 of the BOCW Act requires the employer to give a notice of commencement of construction work to the inspector having jurisdiction in the area where the site is located, the employer may register the establishment from where it carries out the business and issue a notice of commencement whenever it initiates a building or construction work.
Liability to pay cess
As per the Act, the employer in relation to an establishment means, the owner thereof and includes the contractor in case where the building or other construction work is carried on by or through a contractor. Section 3 (charging section) of the Cess Act along with such a definition certainly does not specify whether the cess has to be paid by the owner or the contractor with respect to an establishment. Such a query has been partially addressed by the Courts in Builders Association of India v. UOI [(139) 2007 DLT 578] and New India Construction Company v. State of Haryana (see end note 2) by observing that under the scheme of the BOCW Act, the intention was not to confine the applicability of the Acts to the owner or the contractor but to cover both. The cess should be collected from either the owner or the contractor. The Court has also suggested that if the cess is not collected from the contractor then the same may be collected from the owner.
While it is commendable that the government has woken up to the long neglected construction worker’s welfare, there has been lack of clarity and will in implementation and enforcement until the courts have stepped in to fill the gap. It is understood that the Central Government is also planning to table amendments (see end note 3) to the Acts which shall widen the scope of applicability of the Acts to enable the respective state governments to implement the Acts with ease and it is hoped that the cess so collected will truly benefit the construction workers by providing better and safer work conditions. This is a wake up call to owners, employers and contractors engaged in construction activity to ensure strict compliance and take this cess into account while calculating project costs.
1. The Government of India vide Notification No. S-61011/9/95-RW [SO.2899] dated the 26th September, 1996 has provided that cess for the purposes of the BOCW Act, shall be levied at 1% of the cost of construction incurred by an employer.
2. Unreported – Cited in (2011) ILLJ 307 P&H
3. Press note released by the Cabinet on 1st November, 2012, detailing the proposed amendments.
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