korgaonkar k a Started The Discussion:
Please find below is an article published on
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.
[The author is a Senior Associate, Corporate Practice, Lakshmikumaran & Sridharan, Hyderabad]
Courtesy: News & Publications By Lakshmikumaran & Sridharan (L&S)
we are in to mechanical construction field and we have taken some fabrication & Erection project in Adani port company where they are emphasizing us to register for BOCW. so, are we coming under the act critaria, its not our premises but we are contractor over there. There is marine applies so, due to that they are asking for the same??
Kindly confirm me in the same regard..
awaiting for your valuable reply..
I am a senior manager in a reputed construction conglomerate. We pay the cess by way of deduction at source @ 1% of the bill amount. So, we pay the cess in crores annually. There are very large number of companies of such or a larger magnitude. So the overall remittance is a handsome one. Where the money goes actually. Is it really spent on labor's/worker's welfare? I do not think so. A large part of it might be drained out. The labor get nothing out of it in cash or kind.
Would it not be improper to bifurcate the same? One part (say .5%) may be deducted for government exchequer for comprehensive long term schemes and the other part (balance .5%) for the labor of the same project with adequate monitoring by labor department. Welfare policies concerning local workers related to their socio-economical, education and other related may be dealt with. As the environment mitigation plans, safety plans, insurance etc. are mandatory why such plans as regards labor welfare may not be made compulsory for projects.
Formality i.e. Procedure of registering beneficiaries vary in every state. In Maharashtra, you need to apply for the said registration in Form 5 together with appendix A with following documents of beneficiaries:
1. Photographs ( 2 nos.);
2. Address proof or certificate by employer stating the beneficiary is residing in labour camp provided by him;
3. Age proof ( in absence of age proof, a certificate by employer with doctor’s certificate)
Rs. 85/- towards registration fee (Rs. 25/-) and monthly contribution (Rs. 5/- per month for 12 months in advance, total Rs. 60/-) payable.
The procedure is kept on changing as per the will of the officer. Also there is no uniformity in this, in each office in Maharashtra.
I am attaching herewith From 5, Appendix A, Form of Certificates by employer (as stated above) for your ready reference.
Now question is to be asked by some one, how many registrations have been done so far during last 2-3 years time? But if you have not applied for registration then it is a default on your part.
BOCW Act applies to every establishment which employs, or had employed on any day of the preceding twelve months, ten or more building workers in any building or other construction work.
Building or other construction work means the work of construction, alteration, repairs, maintenance or demolition, of or, in relation to, buildings, streets, roads, railways, tramways, airfields, irrigation, drainage, embankment and navigation works, flood control works (including storm water drainage works), generation, transmission and distribution of power, water works (including channels for distribution of water), oil and gas installations, electric lines, wireless, radio, television, telephone, telegraph and overseas communications, dams, canals, reservoirs, watercourses, tunnels, bridges, viaducts, aquaducts, pipelines, towers, cooling towers, transmission towers and such other work as may be specified in this behalf by the appropriate Government, by notification but does not include any building or other construction work to which the provisions of the Factories Act, 1948 or the Mines Act, 1952 apply.
Accordingly to this, the Act is applicable to your work site.
Establishment under this Act means any establishment belonging to, or under the control of, Government, any body corporate or firm, an individual or association or other body of individuals which or who employs building workers in any building or other construction work; and includes an establishment belonging to a contractor, but does not include an individual who employs such workers in any building or contraction work in relation to his own residence the total cost of such construction not being more than rupees ten lakhs.
Every employer in relation to an establishment to which this Act applies, is liable to register his establishment under the Act on its commencement, within a period of sixty days from such commencement.
Accordingly, you being an establishment belonging to a contractor, are liable to register your establishment under the Act.
(Please be noted from the provisions of the BOCW Act that, it could be inferred that registration under the Act is establishment specific and not employer specific.)
I hope my answer is up to your satisfaction.
I appreciate your feelings and agree with you cent percent. But you and I can not change any enactment. We have no option but to pay the cess as per law.
We pay cess in crores but what is the social security or welfare of the construction labour? Where this money goes?
Of-late, various state governments have started some welfare just to show SC.
Given below is a text of article published in TNN Nov 29, 2011 for your and other members information:
SC threatens contempt to force implementation of construction worker welfare law
NEW DELHI: Millions of workers engaged in the construction sector may son get the promised welfare measures with the Supreme Court on Monday issuing notices to all states and Union Territories asking them to show cause why contempt proceedings be not initiated against officers for non-implementation of two labour friendly laws.
A bench of Chief Justice S H Kapadia and Justices A K Patnaik and Swatanter Kumar said all states and UTs had failed to honour the apex court's orders for full implementation of the Building and Other Construction Workers (Regulation of Employment and Condition of Service) Act, 1996, and the Building and Other Construction Workers Welfare Cess Act, 1996.
"Since almost every state and Union Territory is in contempt on one head or the other, we have no option but to take further steps. However, to give one final opportunity, we direct them to show cause why contempt proceedings be not initiated against concerned officers," the bench said.
With senior advocate Colin Gonsalves, who appeared for NGO 'National Campaign Committee for Central Legislation on Construction Labour' (NCC-CL), complained that the 12-year-old legislations remained dead laws, the bench brushed aside pleas from counsel for states who said they would file affidavits.
The bench said, "Now you face the music. We do not want affidavits. We want compliance of our orders. Question is of disbursal of the cess collected from contractors and not collecting and sitting over it."
The NGO had alleged that Delhi government had collected Rs 140 crore from builders as cess over the years to spend on welfare of workers in the construction sector but not a single penny had gone out of its coffers.
Five years ago, the apex court had sought responses from the Centre and all states why a law intending to provide security net to millions of workers in the construction sector had not been implemented. NCC-CL had alleged that rate of fatal accidents involving construction workers was 160-250 per 1,000 compared to 60-80 per 1,000 in the manufacturing sector, which was the highest in the world.
The laws envisage levying 2% cess on contractors and building a corpus to compensate workers and their family members in case of an accident or death at the construction site. The apex court had in a recent judgment upheld the constitutional validity of the 2% cess.
Given below is a text written by Murali Mohan Mandagaddi, Advocate in his blog, for your information.
Building Labour problems – contempt of court =most of the states have not complied with the directions issued by this Court. They had failed to discharge their statutory duties under the provisions of the Building & Other Construction Worker (Regulations of Employment & Conditions of Service) Act, 1996 (for short, `the Act’) and the Building and Other Construction Workers Welfare Cess Act, 1996 (for short `the Cess Act’), thus, they should be punished for violating the orders of this Court. = audit by the Comptroller and Auditor General (CAG) has not been conducted of the funds placed at the disposal of the concerned authority. We may also notice that large funds are lying with the said Welfare Boards/authorities, but have not been disbursed. The possibility of these amounts being diverted by the state authority for other heads of expenditure in the respective states/union territories cannot be ruled out. Resultantly, while reiterating our earlier orders, we also issue the following directions for their immediate compliance: a) All the State Welfare Boards shall be subjected to audit by the CAG within two months from today. All the States, Union Territories and the State Boards to initiate the process and ensure its completion under the provisions of Section 27 of the Act. 
Dear Mr Anup,
Greetings for giving popurlarity to BOCW Act.
I want to know if this cess once paid by the owner of the land and builinding can be recovered from the Contractor. Our organization is constructing an institutional building. Our organization was required to pay Construction Cess @1% at the time of issue of sanction letter by the local authority. Now we are recovering this Cess from the Contractor who is employing the labour for this project.
Please let us know if we are following the legally correct practice.
Looking forward to your guidance.
C.M. Lal Srivastav
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